[MustPass1988]

Does anyone have a good way of dumbing this down? This topic is really confusing for me. I have a hard time distinguishing between the DTL and the DTA. In Becker it has this pass key:

Future tax accounting income>Future financial accounting income= DTL

Future tax accounting income<future financial accounting income= DTA

For some reason, this pass key isn’t helping me at all and I just can’t figure it out.

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Anonymous]

DTL = TRL & DEN > Trail a Den!

DTA = DEL & TRN > Del is a Train!

TAXABLE REVENUES LATER [TRL] = DEFERRED TAX LIABILITY

[ICE-GI]

1. Involuntary conversion of nonmonetary asset which is recognized under Book but deferred for Tax

2. Contractors Accounting (Percentage of Completion vs. Completed Method

3. Equity Method (Undistributed dividends) for Book and cost method for Tax.

4. G – Gains > Unrealized holding gains under Book (including the FV option), but deferred under Tax.

5. Installment Sales

DEDUCTIBLE EXPENSES NOW [DEN] = DEFERRED TAX LIABILITY

[ADD-P]

1. Amortization of Franchise

2. Depreciable Property

3. Depletable Resources

4. Prepaid expenses that are deducted on the tax return in the period paid

DEDUCTIBLE EXPENSES LATER [DEL] = DEFERRED TAX ASSET

[BOWLLESS]

1. Bad Debts Expense (Allowance vs. Direct Write-Off)

2. Organizational Costs

3. Warranty Liabilities

4. Litigation accruals

5. Loss – Unrealized holding losses under Book (including the use of FV option) but deferred under Tax

6. Estimated liabilities related to discontinued operations or restructurings

7. Stock-Based Compensation Expense

8. Start-up Costs

TAXABLE REVENUES NOW [TRN] = DEFERRED TAX ASSET

[SPS]

1. Subscriptions Received in Advance

2. Prepaid Rent/Interest/Royalties/Contracts

3. Sales and leasebacks under Book (income deferral) but reported as sales under Tax

[Anonymous]

DTL = TRL & DEN > Trail a Den!

DTA = DEL & TRN > Del is a Train!

TAXABLE REVENUES LATER [TRL] = DEFERRED TAX LIABILITY

[ICE-GI]

1. Involuntary conversion of nonmonetary asset which is recognized under Book but deferred for Tax

2. Contractors Accounting (Percentage of Completion vs. Completed Method

3. Equity Method (Undistributed dividends) for Book and cost method for Tax.

4. G – Gains > Unrealized holding gains under Book (including the FV option), but deferred under Tax.

5. Installment Sales

DEDUCTIBLE EXPENSES NOW [DEN] = DEFERRED TAX LIABILITY

[ADD-P]

1. Amortization of Franchise

2. Depreciable Property

3. Depletable Resources

4. Prepaid expenses that are deducted on the tax return in the period paid

DEDUCTIBLE EXPENSES LATER [DEL] = DEFERRED TAX ASSET

[BOWLLESS]

1. Bad Debts Expense (Allowance vs. Direct Write-Off)

2. Organizational Costs

3. Warranty Liabilities

4. Litigation accruals

5. Loss – Unrealized holding losses under Book (including the use of FV option) but deferred under Tax

6. Estimated liabilities related to discontinued operations or restructurings

7. Stock-Based Compensation Expense

8. Start-up Costs

TAXABLE REVENUES NOW [TRN] = DEFERRED TAX ASSET

[SPS]

1. Subscriptions Received in Advance

2. Prepaid Rent/Interest/Royalties/Contracts

3. Sales and leasebacks under Book (income deferral) but reported as sales under Tax

[MustPass1988]

Wow, thanks- that's SO helpful!!!

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MustPass1988]

Wow, thanks- that's SO helpful!!!

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Anonymous]

You're welcome.

Understanding the concept is still the key to get to the right answer than memorization. But with only 1.5-minute recommended time we can use for each MCQ on the actual test, remembering where each of these examples falls on each category will hopefully help us answer it quicker.

However, the examples I cited on each category may not always be DTA or DTL in a given period. There will always be tricks out there.

If the given case problem says, for instance, depreciation expense [DE] on the Book is higher than it is under the Tax for the current year, this expense become a deductible expense later [DEL]. So DE becomes a DTA.

All we need to ask ourselves is this a TRL? DEN? DEL? TRN?

Then we decide if it's going to be a DTA or DTL.

[Anonymous]

You're welcome.

Understanding the concept is still the key to get to the right answer than memorization. But with only 1.5-minute recommended time we can use for each MCQ on the actual test, remembering where each of these examples falls on each category will hopefully help us answer it quicker.

However, the examples I cited on each category may not always be DTA or DTL in a given period. There will always be tricks out there.

If the given case problem says, for instance, depreciation expense [DE] on the Book is higher than it is under the Tax for the current year, this expense become a deductible expense later [DEL]. So DE becomes a DTA.

All we need to ask ourselves is this a TRL? DEN? DEL? TRN?

Then we decide if it's going to be a DTA or DTL.

[Anonymous]

I had the same problem distinguishing between dtl's and dta's. I think the best advice is to actually understand what the concept is and why it is a deferred asset or liability. for all deferred tax questions think FUTURE. Its all about what will occur in the future.

DTA: for example, take a prepaid. the prepaid is paid now and included in tax accounting income when you pay the cash (As tax is primarily cash basis). For book purposes, you will not include the expense until the benefit is used up. This will cause a timing difference where taxable income will higher in FUTURE periods (Because it was already included in income for tax purposes but not for book purposes) and therefore, you have a deferred liability.

DTA: take an accrued liability for an example. You have an expense that you incur now but do not pay until later. You are paying now, and your taxable income will be lower in FUTURE periods compared to book (Because for book purposes the expense is recognized earlier than tax purposes as tax will not recognize the expense until its paid). So you have a deferred asset.

[Anonymous]

I had the same problem distinguishing between dtl's and dta's. I think the best advice is to actually understand what the concept is and why it is a deferred asset or liability. for all deferred tax questions think FUTURE. Its all about what will occur in the future.

DTA: for example, take a prepaid. the prepaid is paid now and included in tax accounting income when you pay the cash (As tax is primarily cash basis). For book purposes, you will not include the expense until the benefit is used up. This will cause a timing difference where taxable income will higher in FUTURE periods (Because it was already included in income for tax purposes but not for book purposes) and therefore, you have a deferred liability.

DTA: take an accrued liability for an example. You have an expense that you incur now but do not pay until later. You are paying now, and your taxable income will be lower in FUTURE periods compared to book (Because for book purposes the expense is recognized earlier than tax purposes as tax will not recognize the expense until its paid). So you have a deferred asset.

[MustPass1988]

I think I finally got it down. I memorized that chart that @Amor listed and then went through the MCQs and they were much easier. The only thing that is still confusing me is the valuation account!

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MustPass1988]

I think I finally got it down. I memorized that chart that @Amor listed and then went through the MCQs and they were much easier. The only thing that is still confusing me is the valuation account!

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Anonymous]

Ugh, valuation account is tortuous, only in the US!

That's the reason why IFRS prohibits it.

I am still not comfortable yet with valuation account either.

[Anonymous]

Ugh, valuation account is tortuous, only in the US!

That's the reason why IFRS prohibits it.

I am still not comfortable yet with valuation account either.

[nicole2035]

@ Amor D your explanation is scary to me because in my Gleim book, it doesn't go into as much detail and the MCs don't hit on half that. Now i'm worried i'm under prepared for the section

[nicole2035]

@ Amor D your explanation is scary to me because in my Gleim book, it doesn't go into as much detail and the MCs don't hit on half that. Now i'm worried i'm under prepared for the section

[Anonymous]

@Nicole, I'm sorry if my chart scares you. I meant no harm in sharing it. LOL

[Author]

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