CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Establishing a valuation allowance reduces ______.

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.
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