- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 3. Determining the Tax Base of Assets and Liabilities
CFA Practice Question
What statement(s) is (are) true?
II. Deferred tax assets and liabilities are always self-reversing over time.
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 |