medium · Private Equity & LBOs
A buyer recognizes a 10M DTL on the pro-forma balance sheet. In Year $1,2M of the associated intangible asset is amortized for book purposes (but not for tax).
What is the impact on the 'Deferred Tax Expense' line of the Income Statement?
- There is a $0.5M deferred tax benefit (reduction in tax expense).
- Cash taxes decrease by $0.5M.
- The DTL increases by $0.5M because the asset is now worth less.
- There is a $2.0M increase in tax expense to match the amortization.
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