CFA L1 / FRA / M9. Income Taxes
Module 9 · FRA

Analysis of Income Taxes

EN: Differences between accounting and tax bases, deferred tax assets/liabilities.
VN: Khác biệt giữa kế toán và thuế, DTA/DTL.

1. Tax Expense Components Core

About: Total tax expense = current tax payable + change in DTL − change in DTA. Reconciles book income tax to taxes actually paid + future tax effects.Tóm tắt: Tax expense = current + ΔDTL − ΔDTA. Cân bằng thuế kế toán với thuế thực trả + thuế tương lai.
\[ \text{Tax expense} = \text{Current tax} + \Delta\,DTL - \Delta\,DTA \]
Practice problem

Current tax payable = $40, ΔDTL = +$8, ΔDTA = −$3. Compute tax expense.

Show solution
Tax expense = 40 + 8 − (−3) = 40 + 8 + 3
Tax expense = $51

2. DTL vs DTA Core

About: DTL: pretax book > taxable now → pay more later (e.g. accel. depreciation for tax). DTA: pretax book < taxable now → save tax later (e.g. NOL, warranty accruals).Tóm tắt: DTL (thuế trả sau cao hơn). DTA (tiết kiệm thuế tương lai). Khác biệt do timing book vs tax.
  • DTL Deferred Tax Liability — pretax income on books > taxable income now → will pay more tax later. Typical cause: accelerated depreciation for tax.
  • DTA Deferred Tax Asset — pretax income on books < taxable income now → will save tax later. Typical: warranty accruals, NOL carryforwards.

3. DTA Valuation Allowance Core

About: US GAAP: contra-account for DTA if > 50% prob. unrealizable. IFRS: only recognize DTA if probable to realize. Conservative — don't book tax assets you can't use.Tóm tắt: US GAAP: valuation allowance nếu >50% không thu hồi. IFRS: chỉ ghi DTA khi có khả năng thu hồi.
  • US GAAP Valuation allowance contra-account if > 50% probability DTA won't be realized.
  • IFRS DTA recognized only to the extent it is probable to be realized.

4. Effective vs Statutory Tax Rate Core

About: Effective rate = tax expense / pretax book income. Differs from statutory due to foreign rates, credits, permanent differences (e.g. tax-exempt interest).Tóm tắt: Tax suất hiệu dụng = tax/pretax. Khác statutory do thuế nước ngoài, credit, chênh lệch vĩnh viễn.
\[ \text{Effective tax rate} = \frac{\text{Tax expense}}{\text{Pretax income}} \]

Differences from statutory: foreign income taxed at different rates, tax credits, permanent differences (e.g. tax-exempt interest).

Practice problem

Statutory = 25%, but firm earned tax credits worth $5 on pretax income $200. Compute effective rate.

Show solution
Tax expense = 0.25(200) − 5 = 45
Effective = 45/200
Effective rate = 22.5%

Practice problem Practice

Practice problem

Tax expense = $30, pretax income = $120. Compute the effective tax rate.

Show solution
Effective rate = 30 / 120
= 25%