Module I· Interview Essentials AccountingAdvanced

Question

Company has 1,000 NOL. A DTA is recognized. Next year it earns 400 profit and uses NOL. Three-statement impact? Tax rate 25%.

Answer

DTA initially equals tax rate x NOL. When NOL is used, cash taxes are reduced and DTA declines.

Deep diveShow more details

DTA recognition requires expected future taxable income. If recoverability is doubtful, valuation allowance / non-recognition applies.

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