First, for 2003, remember that the deferred tax liability (DTL) is cumulative so, it includes the balance from prior years, (assume 2002 in this example since we have no other information).
DTL cumulative = (tax return depreciation – financial statement depreciation) × tax rate + DTL from previous year
- DTL for 2002: (75 – 50) × 0.4 + 0 = 10
- DTL for 2003: (50 – 50) × 0.4 + 10 = 10
- DTL for 2004: (25 – 50) × 0.4 + 10 = 0
