CFA Practice Question

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CFA Practice Question

A firm incurred $100,000 in R&D costs. They were all expensed in the current fiscal year. For tax reporting purposes $30,000 was expensed. The tax base of the R&D costs is ______.

A. $100,000
B. $70,000
C. $30,000
Correct Answer: B

$100,000 - 30,000 = $70,000

User Contributed Comments 7

User Comment
johntan1979 So tax base means the deductible amount, or non-taxable amount, right?

How does this relates to deferred tax? Aren't they the same? *super confused*
gill15 I cant beleive i got one right.
GouldenOne That just doesn't make sense. The question should say tax base after the R&D expense. That questions makes no sense and you would never see it like that in the real world
microeconomist Firm incurred a cost. On the tax form, 30% of the cost was expensed away; the IRS imposed a tax on the remaining 70%. Tax base is the sum of money you are being taxed on --in this case, $70,000.
maryprz14 great explanation MICROECONOMIST. thank you
dbedford In this case the word "expensed" is the key. Expense with a financial report means to recognize on the income statement. The word expense in the tax sense means a tax write off. So the original tax base is $100k;however, the government let you write off $30k bringing the tax base to $70k
mlaique I consider tax base as the carrying amount for the future years. So, if we expensed 30K the first year, we have 70K remaining. Keep in mind:

'Tax Base' = tax jargon for future outstanding amount
'Carry Amount' = accounting jargon for future outstanding amount
Carry Amount (Accounting) - Tax Base (Taxes) > 0 is a Deferred Tax Liability

Income Tax Expense (Accounting) > Income Tax Payable (Taxes)
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