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Basic Question 1 of 15
Assuming that a firm had taxable income in the previous two-year period, the tax effect of a net operating loss (NOL) usually ______
B. results in a current receivable at the end of the NOL year.
C. is subject to a valuation allowance.
A. is reflected as a deferred tax asset/liability at the end of the NOL year.
B. results in a current receivable at the end of the NOL year.
C. is subject to a valuation allowance.
User Contributed Comments 7
User | Comment |
---|---|
stranger | This is treated as an adjustment against previous taxes payable and hence results in a refund or income tax receivable. |
kalps | Income tax receivable amount if it can be carried back against previous two periods, however if there was no profits in previous two years then it may be a deferred tax asset whereby it cab be set off against future tax liability |
freshginger | What's wrong with A? |
mtcfa | I think the answer is correct because it says there were profits in previous years. Otherwise it could be potentially be a deferred tax asset and there fore subject to a valuation allowance. Thus, choices A and B could both be correct. The assumption of previous years taxes is the only thing that holds this question together. |
thekid | 'A' is wrong b/c it states "deferred tax asset/LIABILITY"....which means it would result in a deferred tax asset (which is correct) OR a deferred tax LIABILITY (which is incorrect). |
sshetty2 | Sounds similar to how Mr. Trump got away with avoiding to pay millions in tax dollars |
Ewan2015 | Uh talking of Mr Trump I believe his new Tax Cuts and Jobs Act eliminates the carryback period in almost all instances so the correct answer under new law would be A. |
I was very pleased with your notes and question bank. I especially like the mock exams because it helped to pull everything together.
Martin Rockenfeldt
Learning Outcome Statements
describe the valuation allowance for deferred tax assets - when it is required and what impact it has on financial statements;
explain recognition and measurement of current and deferred tax items;
CFA® 2024 Level I Curriculum, Volume 3, Module 24.