- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 2. Deferred Tax Assets and Liabilities
CFA Practice Question
Which of the following items would require the recognition of a deferred tax asset or liability?
II. Bad debts expense determined by the direct write-off approach for tax purposes but calculated by the allowance approach for financial accounting purposes
III. Interest revenue received from government bonds
I. Interest expense incurred on funds borrowed to acquire tax-exempt state government bonds
II. Bad debts expense determined by the direct write-off approach for tax purposes but calculated by the allowance approach for financial accounting purposes
III. Interest revenue received from government bonds
A. I and II
B. III only
C. II only
Explanation: The only item that is a temporary difference is the difference in the accounting for bad debts expense. The others are permanent differences.
User Contributed Comments 2
| User | Comment |
|---|---|
| kalps | NB - that the deferred tax asset would arise only on the temporary difference |
| CoffeeGirl | a. is permanent difference,cause municipal bonds doesn't pay tax |