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Deferred Tax Liabilities | Definition | Formula | Reasons - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to channel of
wallstreetmojo watch the video till
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the end and also if you are new to this
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clicking the bell ican today we have a
topic with asked says deferred tax
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liabilities now
DTA over here we have taken example of
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Ford's motor Ford Motors has you know at
the initially end of 2010 there was a
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higher there was a higher side of DTL
and then there was a complete a
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significant decline I mean you see the
drop is quite it's quite more till 2012
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and the decline continued and continued
and there was a little fluctuation but
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stability was maintained post facto it
reached to 815 million so it started
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in billions 2.4 and it ended up in $8.5
so what is this all
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about well first and the foremost thing
that we are going to discuss is what are
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DTL what are the different tax
liability for tax liabilities are
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created when the income tax expenses
that is the income tax expenses is
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greater than the tax payable right or
the tax returns and the difference is
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expected to reverse in the future so
detail is the amount of the income taxes
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which are payable in the future period
as a result of the taxable temporary
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differences now first deferred tax
liabilities are created when the amount
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of the IT expenses as I told you are
greater than the tax payable right so this
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can happen when the expenses or losses
are tax-deductible before they are
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recognized in the income statement and
over here the accounting income is
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greater than the taxable income right
and then there is a future taxable
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amounts and then the deferred tax
liability right okay now we will try and
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understand the meaning of this
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see before discussing the deferred tax
liabilities it is very important to
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understand these certain concepts which
will help us to understand why detail is
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created in general the GAAP and IFRS
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okay but the force from the tax laws of
the country this results in the
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difference between income tax expense
recognized in the income statement and
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the actual amount of the tax owed to the
tax authority so due to those
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differences that before tax liabilities
in assets are created the income tax
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expenses you know equations and that
equates you know the tax expenses
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recognized in the income statement and
the tax Payable through the tax
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authorities changes you know in deferred
tax assets and defer tax liabilities so
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the income tax expense will go something
like this is equal to your tax payable
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plus your DTL minus your DTA so the
deferred tax example we will take this
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that's the next thing that we need to
incorporate the example Part see a good
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deferred tax liability example is when
the firm uses an accelerated
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depreciation method of medium for the
tax for was in the straight-line SLM
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depreciation for the financial reporting
sorta for tax liability keeps into
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account the fact that the company in
future will pay more income tax because
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of the transaction that has happened in
the current time period for the example
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of installments he'll receivable let's
say deferred tax liability example you
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know you know the the company's income
statement for the financial reporting
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purpose as you know reporter to the
shoulder we have not charged the income
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and the expenses number so that you know
the high light deferred tax liability
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concept here we assumed that the asset
is worth $1,000 with a useful life of
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3 years and is depreciated
using the SLM method of depreciation now
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you know here is a detail of your 1
2 and 3 there is a revenue cost of
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goods sold
and some other details that have been
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mentioned the asset over here is going
to be worth of $1000 as I told you all
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of the details and the depreciation
using straight and method for $1000 for
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3 years is going to be 333 or 1
year right that's how the details are
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going to go the depreciation
as you can see all the numbers and then
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the post factor is the net income so we
note that you know that text expenses is
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350 for all the 3 years now let's
assume that for the tax purposes the
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company uses the accelerated method of
depreciation so the depreciation profile
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is year one is going to be instead of
333 it's going to be
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500 it's going to be 500
here too it's again going to be 500 and
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year 3 is going to be 0 so
accordingly your tax table will reduce
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down to 300- 300 and
450 right so we know you know the
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tax payable for year 1 comes down to
300 for 2nd year
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300 and 450 you know as
discussed when we use a two different
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kind of depreciation for financial
reporting for tax office it results in
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two deferred taxes now I'll take you to
the calculation part of the DTL see income
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tax expense is equal to your tax payable
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plus DTL- DTA okay so the
deferred tax formula is income tax
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expense minus tax payable plus DTA so
for year 1 Y1 was how much it was
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350 - 300
so no change about I'll just take all
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this number control X and control V so
that will be 54 Y2 it was for us 350
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right it was 350 initial profit then it
was 300 plus there'll be no change in
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DTA + Y3 it's 350 - 450 + 0
that's going to be minus 100 this
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all these numbers are taken from here
350 and 300
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so cumulative differences over here you
know what if our tax liability and the
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balance sheet is our example and the YT
Y1 DTL is gonna be 50 Y2 will be
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accumulated 50 + 50 + Y3 cumulative
DTL is going to be 100 -
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100 so that's gonna be 0 so note you
know the effective reversal is there in
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the year 3 part now I want you to make
you understand
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what are these reasons for Deferred tax
liability see the difference in timing
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of the revenue expenses the recognition
income statements and the tax returns
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that's the first one second certain
revenues and expenses and expenses are
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recognized in the income statement but
are never on the tax return or the vice
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versa third the assets and the
liabilities have different carrying
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amounts net value of the assets or
liability in the balance sheet and the
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tax basis right fourth gains and losses
recognition in the income statement the
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first from the tax returns and the tax
losses from the prior period may offset
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the future taxable income fifth
financial statement adjustments may not
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have effect effect the tax return or may
be recognized in the different period of
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time sixth the breaking down the
deferred tax liability see DTL
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created when the revenues are revenues
or expenses are recognized and in the
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income statement before the taxable
income for example in the firm
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often recognizes the earning of the
subsidiary before any distribution that
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is dividend that has been made and
eventually that DTL will be reversed
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when the taxes are been paid so all of
this after all of this so let me make my
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final conclusion C2 summarise if
the taxable income that is as for the
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tax return if it is less than the
pre-tax income if it is less than the
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pre-tax income and the difference is
expected to reverse in the future you
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are deferred tax DTL is created and
DTL will be result in the future cash
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outflow when the taxes are paid DTL is
most commonly created when an
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accelerated depreciation method is used
on the tax returns and straight-line SLM
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the straight-line depreciation is used
on the income statement now for an
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analyst this is the line item of the
financial statement is very important is
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it the DTL is expected to reverse in
the future and they are considered as
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the liability otherwise it will be
considered as the equity part so that's
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