- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 3. Determining the Tax Base of Assets and Liabilities
CFA Practice Question
A firm made donations of $50,000 this year. The donations were expensed for financial reporting purposes but are not allowed to be expensed for tax purposes. The tax base and carrying amount of this item are ______.
A. $0 | $0
B. $50,000 | $0
C. $0 | $50,000
Explanation: Since the amount was expensed, the carrying amount is $0. The tax base of the donations is also $0, since the donations are not tax deductible. Notice this represents a permanent difference, which will not be reversed in future.
User Contributed Comments 3
| User | Comment |
|---|---|
| jpducros | Since the donation is not tax deductible, shouldn't the tax base be 50 000 ? |
| davido | jpducros: the donation is tax deductible for financial reporting purpose but not for tax reporting purpose. That's the difference. |
| teje | tax base of liab. = carrying amt. - future deductible amt. = 0 - 0 = 0 Remember the donation is expensed immediately, therefore no carrying value! |