CFA Practice Question

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CFA Practice Question

When analyzing the effects of deferred tax liabilities, which of the following factors would make the user not treat the deferred taxes as liabilities?

A. There are changes in the specific price levels of assets.
B. Future tax rates have stayed stable.
C. The general price level has remained stable.
Correct Answer: A

When there are changes in either the general price level or the specific price level of a firm's assets, there is the possibility that the deferred tax liability does not represent a true liability. It will never reverse, and as long as the prices are rising and the firm is replacing its assets, the deferred tax liability will increase.

User Contributed Comments 1

User Comment
kalps 1. Changes in General price levels 2. Changes in specific prices levels of assets Deferred tax liability does not represent a true liability - it will never reverse out as long as prices continue to rise and the firm continues to replace its assets.
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