Please help The income tax rate for Hudson Refinery has been 35 percent for each
ID: 2540917 • Letter: P
Question
Please help
The income tax rate for Hudson Refinery has been 35 percent for each of its 12 years in operation. Company forecasters expect a much-debated tax reform bill to be passed by the new Congress next year. The new tax rate would decrease Hudson's tax rate to 15 percent.
· Discuss the company's deferred tax liability strategy going forward. Which rate should the company use, and why should they use that rate?
· Discuss the impact that strategy will have on the company's net income and cash flow for the next three years should the bill pass.
Explanation / Answer
Deferred Tax Liability: Deferred tax liability arise on accounts the temporary differences between companies accounting income & Taxable income. Deferred Tax Liability record the facts that Company will pay more income tax in future because of current year transaction for example . Preliminary Expenses allows in whole in year incurred & Income same will be allowed Five Installmemt.
ompanies income before tax in profit & loss accounts is greater than its taxable income thats increase the deferred tax liablity. that represent the future tax liability thats company expected to be paid. Rate of tax for calculate the deferred tax liability is current tax rate Applicable in year of cacluration.
If there is decrease in tax rate in future Companies net income increase and cash flow in next three year will also increase by 10% of net income when rate tax decrease from 25% to 15%.