- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 9. Analysis of Income Taxes
- Subject 3. Determining the Tax Base of Assets and Liabilities
CFA Practice Question
Which of the following is false?
B. The adjustment to the deferred tax asset or liability when rates change is computed using the old rate.
C. The adjustment to the deferred tax asset or liability when rates change is computed using the new rate.
D. The adjustment will be the amount to bring the balance in the deferred tax asset or liability to the amount that would be calculated if the new rate had been used all along.
A. When tax rates change, the deferred tax liability or asset is adjusted to the new amount that is now expected based upon the new rate.
B. The adjustment to the deferred tax asset or liability when rates change is computed using the old rate.
C. The adjustment to the deferred tax asset or liability when rates change is computed using the new rate.
D. The adjustment will be the amount to bring the balance in the deferred tax asset or liability to the amount that would be calculated if the new rate had been used all along.
Correct Answer: B
The new rate should be used for any calculations, and the amount of the adjustment would be what it takes to bring the balance of the deferred tax asset or liability to the amount that it would be had it been based on the new rate all along.
User Contributed Comments 4
| User | Comment |
|---|---|
| stranger | correct answer here is B since D is true and has been given as explanation |
| kalps | Spot on old boy, I agree |
| johntan1979 | So I guess you could say that the tax rate change is retrospective. |
| ecapocas | Eh. It's kinda misleading. To do the full process you need to use both rates, then the difference between the two is your adjustment to the balances. |