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Basic Question 10 of 20
A firm's deferred tax liability account balance would continue to increase from year to year if its book income consistently exceeds taxable income (due to temporary rather than permanent differences) and the difference continues to widen. True or False?
User Contributed Comments 3
| User | Comment |
|---|---|
| kalps | If book income continuously keeps exceeding taxable income (due to timing differences) then there will be a deferred income tax liability that will continue to grow. |
| Renaud1807 | what about "continue to widen"? |
| johntan1979 | I thought that eventually, it will reach a point where the DTLs will never be reversed and should be charged directly to equity instead of liability? But I guess that in the situation of the question above, the growth was just starting, hence the statement is true, that DTL will continue to grow. |
I used your notes and passed ... highly recommended!
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Learning Outcome Statements
explain how deferred tax liabilities and assets are created and the factors that determine how a company's deferred tax liabilities and assets should be treated for the purposes of financial analysis
CFA® 2024 Level I Curriculum, Volume 3, Module 9.