Deferred Tax Accounting: Temporary Differences, DTA & DTL

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Turn Kestrel Components Inc.’ accounting profit for 2026 into taxable profit, sort each adjustment into permanent or temporary, and calculate the current tax.
• Compare the carrying amount and the tax base of eight balance sheet items of Kestrel Components Inc. at 31 Dec 2026 and total the deferred tax liability and asset.
• Follow the CNC machine of Kestrel Components Inc. over its whole life: carrying amount vs tax base, the deferred tax liability building up and reversing, and the yearly deferred tax expense.
• Calculate the deferred tax asset of Kestrel Labs, a loss-making subsidiary, and test how much of it is supported by future taxable profit.
• One year later: in December 2027 a lower tax rate is enacted for 2028 onward. You remeasure Kestrel Components Inc.’ deferred tax and split the effect between profit or loss and other comprehensive income.
• Put together Kestrel Components Inc.’ income tax expense for 2026 from current and deferred tax, work out the tax still payable and book it.
• Explain why Kestrel Group’s tax expense is not simply 25 % of its profit: a reconciliation from the home rate to the actual tax, its effective rate and a waterfall chart.
• Decide which deferred tax balances of the Kestrel Group may be offset, present the group balance sheet amounts and build the movement table by type of temporary difference.