Tax Allocation Process

Question 1

What are originating and reversing differences. How do you account for this?

Answer 1

Items often cause differences that originate and reverse over many years.

Use the total FUTURE difference at the end of any year for the DTL and DTA.

Question 2

What is an example of a originating and reversing difference?

Answer 2

Depreciation Expense. Sometimes book depreciation will less or greater than the depreciation for tax purposes over the life of the asset. BUT the asset depreciation will equal in the end.

Question 3

On the CPA Exam, there may be two rates. Which rates do you use?

Answer 3

Enacted rate! If it changes during the year, use the new rate.