CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

What statement(s) is (are) true?

I. A valuation allowance lowers current period reported net income.
II. Deferred tax assets and liabilities are always self-reversing over time.
A. I only
B. II only
C. Neither of them is true.

User Contributed Comments 6

User Comment
Kuki About II: deferred taxes may prolong due to various reasons for e.g. acquisition of new assets. As a result, there is an continuing difference in the depreciation reported in Inc Stmt and depreciation for tax reporting. This is especially true for growth companies.
boddunah def. tax assets and liabilities not always self reversing .
student111 why valuation allowance lowers current year net income?
teje Income tax expense = taxes payable - change in DTA + change in DTL

crediting valuation allowance, will decreased DTA, resulting in an increase in income tax expense (according to the formula above), thereby decreasing net income.
gill15 Impressive
ashish100 Good stuff teje!
Thank you :D
You need to log in first to add your comment.