- CFA Exams
- CFA Level I Exam
- 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
______ are effectively a form of equity.
A. Temporary deferred taxes
B. Permanent deferred taxes
C. Neither temporary deferred taxes nor permanent deferred taxes
Explanation: When deferred taxes are permanent (not expected to reverse), they effectively serve as a form of equity reserve account.
User Contributed Comments 5
| User | Comment |
|---|---|
| cahiz84 | What about temporary difference not likely to be realised? |
| adam08 | then it's permanent difference. |
| Micha | They are not permanent differences by definition (but economically). |
| clarelau | permanent DEFERRED TAX, not permanent difference!!! I should be more careful |
| jpducros | I think permanent deferred tax is somewhat an "exagerated" term since Deffered tax is by nature reversible, thus temporary. We tend to call them permanent only used when investments in the coming years are rising (therefore generating more temporary differences; more DTL) and that the company does not expect to use a Differed tax Liability so soon. Therefore, this DTL could be assimilated to Equity, since it is a form of Long-Term financing. |