Understanding DTAs
I think I need a good example with hard numbers to clarify this:
Let's say that statutory accounting records losses at $1000 and these are discounted down to $750 for tax reporting purposes. So the DTA would be $250=$1000-$750?
I think I'm confused because there's uncertainty still on what the future value of the losses will be; isn't there? I thought the inflation rate was just estimated and the final value could be something like $1100 ($100 more than estimated in this case).
Thank you
Comments
The DTA would be 0.21*250, the tax on the difference.
The difference is that of undiscounted and discounted reserve. Inflation is reflected in the discount factor used.
Of course, this is a simplistic example. Odomirok text gets into the detail of how to determine DTA in various sections. But note that calculation of DTA was not a heavily tested topic. Usually, you will be given the DTA to use.