Caramel Co. at the end of 2022, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income- $3,000,000 Estimated litigation expense- 4,000,000 Excess tax depreciation- (6,000,000) Taxable Income- $1,000,000 The estimated litigation expense of $4,000,000 will be deductible in 2023 when it is expected to be paid. The depreciable assets will result in deductible amounts of $2,000,000 in each of the next three years. The income tax rate is 20% for all years. The deferred tax asset to be recognized for 2022
Caramel Co. at the end of 2022, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income- $3,000,000
Estimated litigation expense- 4,000,000
Excess tax depreciation- (6,000,000)
Taxable Income- $1,000,000
The estimated litigation expense of $4,000,000 will be deductible in 2023 when it is expected to be paid. The
The
when there is taxable temporary difference arise between accounting profit and tax profit then either deferred tax asset or deferred tax liability arise.
If accounting profit is more than taxable profit then deferred tax liability arise.
If accounting profit is less than taxable profit then deferred tax asset arise.
We always need to calculate income tax expense on the base of accounting income and tax liability based on taxable income.
Difference between both need to recorded as deferred tax asset or deferred tax liability.
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