What adjustment is required to the opening deferred taxes as a result of the rate change?

Question

Quizplus · Accepted Answer

Deferred taxes are created because of the difference in the recognition of revenue and expenses for accounting and tax purposes. Any change in the tax rate affects the amount of deferred taxes, and a decrease in the tax rate reduces the deferred tax liability. As per the question, the tax rate has decreased, which means the opening deferred tax balance will decrease, and a credit entry is required to reduce the liability. Therefore, the adjustment required is 40,000 credit.

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