Question

LO3, 6 Colgate-Palmolive (CL) E10-37. Analyzing and Interpreting Income Tax Disclosures Colgate-Palmolive reports the following income tax footnote disclosure in its 10-K report (266) Deferred Tax Balances at December 31 ($ millions) 2015 2014 Deferred tax liabilities Goodwill and intangible assets.... $ (458) $ (497) Property, plant and equipment .. (380) (380) Other ... (150) (988) (1143) Deferred tax assets Pension and other retiree benefits ... 541638 Tax loss and tax credit carryforwards. 30 33 Accrued liabilities...... 235 276 Stock-based compensation..... 123 119 Other.... 151 1080 1,214 Net deferred income taxes..... .. $0 92 $ 71 Explain how a.Colgate reports $380 million of deferred tax liabilities in 2015 relating to "Property such liabilities arise. b Describe how a deferred tax asset can arise from pension and other retiree benefits

Answer 1

Under Income Tax there are 2 kinds of differences known as Temporary Differences and Other than temporary differences.

Temporary Differences are of 2 kinds, Taxable Temporary Difference, resulting in Deferred Tax Liability(DTL) and Deductible Temporary Difference resulting in DTA.

Other than Temporary Differences cannot be reversed.

we need to recognise DTL in a case, suppose our income tax liability is less under our books of accounts and more as per the Income Tax Act. Eg:- Value of PPE is $4000, and depreciation as per the prescribed method of accounting used as per us is $200 say, and depreciation as per the Income Tax is $580, than our liability as per Income Tax is more, resulting in DTL of $380 ($580-$200) say.

A DTA can arise from pension in a variety of ways. Suppose tax rate has been changed in respect of retirement benefit, say from 10% to 5%, than we will have to pay less to Income Tax, resulting in DTA

or say, reversal has been made by a particular company and excess tax is paid last year, than it will leadto lesser tax to be paid in current year

or suppose government reduced the tax rate, than it will lead to DTA in our books, as earlier more tax has been paid towards Government, now lesser tax is required to be paid.