CFA Practice Question

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CFA Practice Question

In the absence of temporary differences, there should be no difference between income tax expense and income tax payable. True or False?
Correct Answer: True

User Contributed Comments 16

User Comment
kalps In the absence of temporary differences there should be no differnce between income tax payable and income tax expense.
blumonster ?? but there could be permanent diff which cause income tax expense to be diff from tax payable
i020757 i think permanent diff only result diff in financial income & taxable income.
i020757 agree with you, how about permanent diff??
Nancyz Tax expense = tax payable +/- net change of deferred tax liability/asset.
Since there is no temporary difference, there would be no deferred tax liability/asset. Therefore, tax expense = tax payable.

Permanent different only result in difference between the effective tax rate and the statutory tax rate.
danlan If there is permanent difference, do we use effective tax rate or statutory tax rate?
mtcfa I don't like the question. If there is a permanent difference, tax expense will not equal taxes payable in the year of the event.
gnja tax expense and taxes payable should equal because as said earlier permanent diff only result in diff bet eff tax rate and statutory tax rate. thus, if you multiply the effective tax rate (considering permanent diff) with the financial income, the tax expense should equal taxes payable (if there are no deferrals)
o123 mtcfa...they will be equal.
The permenant diff will show up in the statements due to a pretax income (I/S) which will be different [permenantly] than the corresponding taxable income (Tax Return).
Khadria Permanent difference will cause to deduct the extra income from the revenue and hence the taxable (or pretax) income will remain the same.
steved333 Khadria puts it best, I think. Good point. I can remember that (I hope)
boddunah permanent diff. dont create DTL and DTA.
Tax credits directly reduce taxes payable.
johntan1979 Nancyz nailed it. The equation holds true, regardless of how you argue it.

Tax expense = Tax payable + DTL

Tax expense + DTA = Tax payable

No DTL or DTA: Tax expense = Tax payable
Seancfa1 Thank-you Nancyz and Johntan1979.
tayhorvat If I pass it is soley because of johtan1979. Thank you for all your explanations
Freddie33 ^Johntan is my savio
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