What adjustment is required to the opening deferred taxes as a result of the rate change? $$\begin{array} { | l | r | }
\hline \begin{array} { l }
\text { Opening deductible (taxable) temporary } \
\text { differences }
\end{array} & ( 400,000 ) \
\hline \text { Current year deductible (taxable) temporary } & ( 100,000 ) \
\text { differences } & \
\hline \text { Tax rate (prior year) } & 30 \% \
\hline \text { Tax rate (current year) } & 40 \% \
\hline
\end{array}$$

Question

What adjustment is required to the opening deferred taxes as a result of the rate change? $$\begin{array} { | l | r | } 
\hline \begin{array} { l } 
\text { Opening deductible (taxable) temporary } \
\text { differences }
\end{array} & ( 400,000 ) \
\hline \text { Current year deductible (taxable) temporary } & ( 100,000 ) \
\text { differences } & \
\hline \text { Tax rate (prior year) } & 30 \% \
\hline \text { Tax rate (current year) } & 40 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

When there is a change in tax rates, the opening deferred tax balance needs to be adjusted accordingly. In this case, since the tax rate decreased, the deferred tax liability (DTL) will decrease as well. The adjustment required to reduce the DTL by $30,000 is a credit to the opening deferred tax balance, hence the correct answer is B - 30,000 credit.

What Adjustment Is Required to the Opening Deferred Taxes as a Result