CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which of the following temporary differences ordinarily results in a future tax liability?
A. Accrued warranty costs
B. Depreciation of equipment
C. Subscription revenue collected in advance

User Contributed Comments 6

User Comment
najat Why is C wrong? isn't it an unearned revenue? or is it because it doesn't "ordinarily results in a future tax liability"..?
davido C is a deferred tax asset - you pay the taxes now on these "revenue".
gill15 This makes no sense. It depends on the depreciation method used for accounting and tax purposes. If for accounting purposes we used SLM and Accelerated for Tax then we would have a DTL right now. If you switch it around we would have a DTA right now.

Whats goin on?
schweitzdm gill, perhaps the key word is "ordinary"
In any event I'm still lost on these concepts.
Fabulous1 First of all you could answer the question by the exclusion principle as the other two choices dont make sense.
And then you can assume that you would use the same or a more agressive depreciation method for tax purposes to save taxes with the IRS.
ashish100 This was a good question.

First i picked c, then a, then finally b after working it out on a notecard. So satisfying.
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