- 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
Taxable temporary differences result in a deferred tax ______ when the carrying amount of an asset is ______ than its tax base.
B. liability; more
C. liability; less
A. asset; less
B. liability; more
C. liability; less
Correct Answer: B
Taxable temporary differences always result in a deferred tax liability and taxable amount later.
User Contributed Comments 11
| User | Comment |
|---|---|
| panvino | Page 397 of the notes reads as follows: Taxable temporary differences result in a deferred tax liability when the carrying amount of an asset EXCEEDS its tax base and, in the case of a liability, when the tax base of the liability exceeds its carrying amount. |
| mattg | Conversely, a deferred tax asset that results when an asset's carrying amount is less than it's tax base would be categorized as a DEDUCTIBLE temporary difference |
| prajacti | thanks mattg! cleared my confusion about "taxable" and "deductible" temp diff. |
| johntan1979 | So how do you explain the table in the notes where DTL can be on both sides of the balance sheet, and can be (carrying > tax base) as well as (carrying < tax base)??? Don't you just love taxes? :) |
| gill15 | 2 more questions...almost... crazy thing is....I finally get this. |
| Shaan23 | John --- I think and its weird as hell that you assume the Asset side if nothing mentioned. If unearned R was mentioned then everything would be reversed.....pretty stupid though. |
| Shaan23 | My bad....it actually says in the question Carrying Value of ASSET...... |
| PHawk | A can be excluded since either B or C must be true. |
| farhan92 | how i remember it is asset shoots (>) the sheriff and becomes a liability Asset => CV> tax Base = def tax liab. |
| Davidrh | In the notes it says: "The carrying amount of the accounts receivable becomes $97,000. The tax base of the asset still remains $100,000. The firm has a deductible temporary difference of $3,000- Management should recognize a deferred tax asset in respect to the deductible temporary difference." I don't see how Answer A would be wrong then. Can someone please explain? |
| olebsntuka | @Davidrh: A is wrong because the question specifically asks about Taxable Temporary Differences. so when the carrying amount of an asset is less than its tax base, you get a deductible temporary difference (not a taxable temporary difference). |