- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 5. Recognition and Measurement of Current and Deferred Tax
CFA Practice Question
Establishing a valuation allowance reduces ______.
II. income
III. the deferred tax liability
I. the deferred tax asset
II. income
III. the deferred tax liability
Correct Answer: I and II
User Contributed Comments 3
| User | Comment |
|---|---|
| stargal117 | How does valuation allowance reduce income? Income tax expense = tax payable + change in DTL - change in DTA. If DTA decreases, then income tax expense increases, so Net income would increase. No? |
| stargal117 | ha. I just answered my own question. Income tax expense increase will lead to decrease of net income. |
| khalifa92 | smart smart and DTL is unaffected. |