iaw very happy really before this video i was with prof mark meldrem but i didnot understand the income taxes from him now iam happy really thank you very much i hope your videos to help me to pass the dec 2018 exam very happy to listen to ur videos
Dear Amr, Thanks for your email and your kind words. We are sure that you will be able to benefit from IFT RUclips videos. IFT products are excellent value for money. However since we are a small company, we can always use your help spreading good words about IFT. We will be grateful for 'your' help too. Can you take a few minutes to look at this document and if you can do some of the tasks there, we will be obliged and we'll induct you into the IFT Fan Club. bit.ly/helpift IFT Support Team
@IFT , can you please explain why upward revaluation of ASSET increases DTL, whereas Depreciation becomes higher in upward Revaluation, and higher depreciation means lower PBT, and lower PBT means lower DTL ... It means, if we have upward revaluation, it should mean it’ll be deducted temporary difference. No ?
When we have an upward revaluation, the depreciation exp calculated from the higher revalued asset comes off the carrying amount of that higher revalued asset. However, tax laws require that this depreciation exp (that is calculated from the higher revalued asset) must come off the original carrying amount of the asset in the period before revaluation. Thus, the new carrying amount of the asset in the tax book is lower than the new carrying amount of the asset in the accounting book. So for tax purposes, the upward revaluation of the asset is not recognized but the higher depreciation calculated from the higher revalued asset is. This makes PBT higher than Taxable Income, increasing DTL.
At the 16:18 mark, shouldn't have 2012 revenues increase from 100 to 120 in the financial reporting section, since the company is realizing revenues all at once a year later from 2011? Why did revenues stay at a 100 in the financial reporting statement for both 2011 and 2012?
Dear Murked, Revenues are recognized in the period that they are earned (revenue recognition), even if we receive cash in an earlier or a later period. In this case cash of 20 was received in 2011, but was recognized in 2012. This does not change the revenue recognized in 2011 and 2012, but taxable income will go up because of the fact that we received cash amount more than the revenue earned. IFT Support Team
Could uoi please explain how the Accelerated Dep has calculated in Tax reporting? I use the formula for ths (2/life period of good)*book value, that's meant (2/2)*50=50
Accelerated depreciation rate = 2*straight line depreciation rate. Example- if straight line depreciation rate is 10%, then the accelerated rate will be 2*10% = 20%.
At 22:30 carrying amount is taken as 0 for 2012 and tax base is taken as 0 too.. where are u getting these numbers from? In 2011 DTL calculation u simply did (25-10)* .4 which made sense. Considering this convention , shouldnt 2012 calculation be (25-40)*.4 ?
Dear Nouman, An asset is purchased for 50 and is depreciated over two years. On the financial statements the depreciation is 25 and 25. According to tax rules the depreciation is 40 and 10. 20112012Carrying amount50 - 25 = 2525 - 25 = 0Tax base50 - 40 = 1010 - 10 = 0 IFT Support Team
since depreciation for 2012 is 25 and asset beginning carrying value in 2012 was also 25, so ending carrying value is 25 - 25 = 0. An asset is purchased for 50 and is depreciated over two years. On the financial statements the depreciation is 25 and 25. According to tax rules the depreciation is 40 and 10. Show the carrying amount and tax base at T=0, T=1, and T=2. Time period T = 0 2011 2012 Carrying Amount (Financial Reporting) 50 50 - 25 = 25 25 - 25 = 0 Tax Base (Tax reporting) 50 50 - 40 = 10 10 - 10 = 0 IFT Support Team
could you please explain again how the DTL for 2012 is 0? because the carrying amount and Tax base are same in both the years, so it should be same for DTL ? could you please explain again? is it the DTL is reversed or what?
In each fiscal year, only the change in the deferred tax liability should be included in the calculation of the income tax expense reported on the income statement prepared for accounting purposes. That is, in 2011, DTL is 6; in 2012, DTL is 10 - 16 = -6. So, the deferred tax liability that should be reflected on the balance sheet in 2012 is -6 + 6 = 0. IFT support team
Hi, at around 7:32 you mentioned that income tax payable is shown on the balance sheet. I am a bit confused with this part, isn’t income tax payable on the income statement. I guess I am not sure where the balance sheet is coming for income? Could you please explain. Thanks a ton for taking the time on these videos.
Dear Student, Income tax paid is an expense and should be shown on the income statement. Whereas, income tax "payable" is a liability and should be shown on the balance sheet. IFT Support Team
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Thank you. I spent 3 hours understanding this single slide using curriculum. CFAI has made things look complex.
Great to hear!
iaw very happy really before this video i was with prof mark meldrem but i didnot understand the income taxes from him now iam happy really thank you very much i hope your videos to help me to pass the dec 2018 exam very happy to listen to ur videos
Dear Amr,
Thanks for your email and your kind words. We are sure that you will be able to benefit from IFT RUclips videos.
IFT products are excellent value for money. However since we are a small company, we can always use your help spreading good words about IFT. We will be grateful for 'your' help too. Can you take a few minutes to look at this document and if you can do some of the tasks there, we will be obliged and we'll induct you into the IFT Fan Club. bit.ly/helpift
IFT Support Team
thank you sir
God i spent soo long trying to understand this on my own. looked through a couple of videos but this one was by far the best. keep up the good work.
Great to hear!
IFT Support Team
The way you explain it is fabulous, I cannot wait to go to CFA Level 2 to assist your classes. Thank you very much
Dear Bruna,
We are glad that you like the videos.Thanks for your nice comments.
IFT Support Team
This is the best videos I found on this topic. I’m currently study for my CPA exam. This topic is really confusing for me
Its a great learning after watching your video especially on tax base calculation. Keep up the good service.
your explanation is one of the best i have come across. I would like to pursue level 2 with you.
Thanks for this video lecture and explained very easily understandable.
We are glad that you find the lectures helpful and thanks for your comments.
IFT support team
Thanks, I have been studying this chapter on my own for a while, and still don't understand... this video helps a lot!
You’re a life saver. THANK YOU SO MUCHHH
IFT, you are the man!
@IFT , can you please explain why upward revaluation of ASSET increases DTL, whereas Depreciation becomes higher in upward Revaluation, and higher depreciation means lower PBT, and lower PBT means lower DTL ...
It means, if we have upward revaluation, it should mean it’ll be deducted temporary difference. No ?
When we have an upward revaluation, the depreciation exp calculated from the higher revalued asset comes off the carrying amount of that higher revalued asset. However, tax laws require that this depreciation exp (that is calculated from the higher revalued asset) must come off the original carrying amount of the asset in the period before revaluation. Thus, the new carrying amount of the asset in the tax book is lower than the new carrying amount of the asset in the accounting book. So for tax purposes, the upward revaluation of the asset is not recognized but the higher depreciation calculated from the higher revalued asset is. This makes PBT higher than Taxable Income, increasing DTL.
Much simplied..wonderful stuff..
Thanks.
IFT support team
Complicated things in a simple way. thank you!
Thanks for your kind words.
IFT Support Team
At the 16:18 mark, shouldn't have 2012 revenues increase from 100 to 120 in the financial reporting section, since the company is realizing revenues all at once a year later from 2011? Why did revenues stay at a 100 in the financial reporting statement for both 2011 and 2012?
Dear Murked,
Revenues are recognized in the period that they are earned (revenue recognition), even if we receive cash in an earlier or a later period. In this case cash of 20 was received in 2011, but was recognized in 2012. This does not change the revenue recognized in 2011 and 2012, but taxable income will go up because of the fact that we received cash amount more than the revenue earned.
IFT Support Team
No, you need to go over the principle of accrual accounting.
Could uoi please explain how the Accelerated Dep has calculated in Tax reporting? I use the formula for ths (2/life period of good)*book value, that's meant (2/2)*50=50
Accelerated depreciation rate = 2*straight line depreciation rate.
Example- if straight line depreciation rate is 10%, then the accelerated rate will be 2*10% = 20%.
At 22:30 carrying amount is taken as 0 for 2012 and tax base is taken as 0 too.. where are u getting these numbers from? In 2011 DTL calculation u simply did (25-10)* .4 which made sense. Considering this convention , shouldnt 2012 calculation be (25-40)*.4 ?
Dear Nouman,
An asset is purchased for 50 and is depreciated over two years. On the financial statements the depreciation is 25 and 25. According to tax rules the depreciation is 40 and 10. 20112012Carrying amount50 - 25 = 2525 - 25 = 0Tax base50 - 40 = 1010 - 10 = 0
IFT Support Team
@@IFT-CFA Carrying amount has been calculated on Depn instead of Profit before Tax?
Thank you beyond words!
You are a Boss sir
Thanks for your words.
IFT support team
Very nicely explained.
Thank you and greatly appreciated.
IFT Support Team
so well explained!
Why is it (0-0)*0.4 for the end of year 2012? Isn’t the carrying value 25 and tax base 40??
since depreciation for 2012 is 25 and asset beginning carrying value in 2012 was also 25, so ending carrying value is 25 - 25 = 0.
An asset is purchased for 50 and is depreciated over two years. On the financial statements the depreciation is 25 and 25. According to tax rules the depreciation is 40 and 10. Show the carrying amount and tax base at T=0, T=1, and T=2.
Time period
T = 0
2011
2012
Carrying Amount (Financial Reporting)
50
50 - 25 = 25
25 - 25 = 0
Tax Base (Tax reporting)
50
50 - 40 = 10
10 - 10 = 0
IFT Support Team
Thank you so much!
Too much ads but love it
very good !!!
Thanks a lot!
IFT Support Team
thanks
could you please explain again how the DTL for 2012 is 0? because the carrying amount and Tax base are same in both the years, so it should be same for DTL ? could you please explain again? is it the DTL is reversed or what?
In each fiscal year, only the change in the deferred tax liability should be included in the calculation of the income tax expense reported on the income statement prepared for accounting purposes. That is, in 2011, DTL is 6; in 2012, DTL is 10 - 16 = -6. So, the deferred tax liability that should be reflected on the balance sheet in 2012 is -6 + 6 = 0.
IFT support team
The chapter on income taxes on the official text book is poorly written. This video explains much better.
Thans.
IFT support team
Hi, at around 7:32 you mentioned that income tax payable is shown on the balance sheet. I am a bit confused with this part, isn’t income tax payable on the income statement. I guess I am not sure where the balance sheet is coming for income? Could you please explain. Thanks a ton for taking the time on these videos.
Income tax expense is showed in income statement. Whereas the tax payaable is shown on the face of balance sheet
Dear Student,
Income tax paid is an expense and should be shown on the income statement. Whereas, income tax "payable" is a liability and should be shown on the balance sheet.
IFT Support Team
Hi, could you please explain how you got 40 and 10 in accelerated depreciation?
what exactly is a tax base and carrying amount ? and could please explain the relationship briefly ?
Madam,tax base is value of assets and liabilities as per tax books.carrying value is value of assets and liabilities as per accounting books.
Too many adda...but thanks
Complicated things in a simple way. thank you!