CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which one of the following would not result in a timing difference?

I. Accelerated depreciation is used for tax purposes and straight-line is used for financial reporting.
II. Warranty expense is estimated for financial reporting; however, for tax purposes it is recognized as incurred.
III. Installment sales are recognized at point of sale for financial purposes but as the cash is received for tax purposes.
A. I and III
B. II only
C. All would result in a timing difference
Explanation: All of these methods would result in timing differences and the application of income tax allocations.

User Contributed Comments 4

User Comment
wollogo Can someone explain why I is a timing difference? I thought the timing of the expense was the same, just different amounts.
rufi wallogo,different deprecion results in different non-cash expenses, which affect pretax income and tax expense as well
Profache A timing difference is a difference that eventually will disapear, once the asset is fully depreciated, the warranties have expired, and the total revenues have been recognized.
teje accelerated depreciation on tax side (often referred to as MACRS) results in lower taxes payable, as the higher depreciation expense reduces taxable income. However, these taxes will eventually have to be paid...deferred tax liabilities arise when taxes payable < income taxes; also for DTL when carrying amount > tax base

Note: tax base of asset = carrying amt. - future taxable amt. + future deductible amt.

(by convention the carrying amt. is usually equal to the future taxable amt.)
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