what is differred tax liability? explain in detail with
some example.
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Answer Posted / Vivlendra Pal
Deferred tax liability (DTL) refers to a liability that arises when a company recognizes an amount of tax expense on its balance sheet due to differences between the financial reporting and tax bases of assets and liabilities. DTL represents the future taxes owed as a result of temporary differences that will eventually be reconciled in future periods.
For example, let's consider a situation where a company purchases equipment for $10,000 but can only deduct $5,000 from its taxable income in the current year due to depreciation rules. The remaining $5,000 will be deducted in future years. However, the full $10,000 expense is recorded on the company's balance sheet immediately. In this case, a deferred tax liability of $1,750 (assuming a 17.5% tax rate) would be recognized, representing the taxes owed in future years when the remaining depreciation is deducted.
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