- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 9. Analysis of Income Taxes
- Subject 4. Temporary versus Permanent Differences
CFA Practice Question
SFAS No. 109 requires which of the following reporting practices?
B. Computation of deferred tax assets and liabilities based only on temporary differences
C. Computation of deferred tax assets and liabilities based only on permanent differences
A. Computation of income tax expense based on taxable income
B. Computation of deferred tax assets and liabilities based only on temporary differences
C. Computation of deferred tax assets and liabilities based only on permanent differences
Correct Answer: B
Deferred tax assets and liabilities result from temporary or timing differences that are expected to reverse in the future. Permanent differences are not deferred.
User Contributed Comments 6
| User | Comment |
|---|---|
| stranger | a. income tax expense is based on pre tax income b. no deferred tax calculation is done on permanent differences |
| kalps | Deferred tax aseets/liabilities are temporary/timing differences that are expected to reverse out in the future |
| sarath | NO deferred tax calculations done on permanent differences. |
| boddunah | if def.tax liabilities are expected to reverse then def. tax liabilities are treated as equity and reflected in share holders equity directly. ex: growth companies buying new equipment every year b4 DTL reversed. permanent difference donot result in DTL & DTA. No DTL & DTA means Inc. Tax xpense = tax payable. |
| boddunah | i mean if def. tax liabilites are NOT expected to reverse then its treated as equity. |
| Kevdharr | OMG I GOT ONE RIGHT |