CFA Practice Question

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CFA Practice Question

Which item will lead to the recognition of a deferred tax asset?

I. Development costs
II. Loan
III. Rent received in advance
IV. Donations
Correct Answer: III only

I will result in a deferred tax liability. II will not create any temporary differences. IV will create a permanent difference.

User Contributed Comments 5

User Comment
kapg i dont get this !
prajacti I: development costs if capitalised for book purposes result in book income > taxable income, hence DTL
II: for loan tax base = book base, hence no temp diff
III: rent recd in advance is fully taxable for tax purposes, but not reported in revenue for book purposes. hence taxable income > book income so DTA
IV: donations may not be deductible for tax purposes, so permanent diff
moneyguy Thank you for the thorough explanation, prajacti
gill15 Developmental Cost doesnt make sense. If developmental costs are capitalized for book purposes, we also need to know how developmental costs are treated for tax purposes for this to make any sense
domedome Patent and development costs are considered research and development costs and are expensed as incurred. So why should they created temporary differences? Unless they are capitalized and amortized they would not create them.
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