CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which of the following will give rise to a deferred tax liability?
A. An expense is recognized for financial purposes before it is recognized for tax purposes.
B. Taxes payable (owed) are more than the income tax expense reported on the income statement.
C. Revenue is recognized earlier for financial purposes than for tax return purposes.
Explanation: A deferred tax liability will arise when taxable income is less than financial reporting income.

User Contributed Comments 8

User Comment
cissy why not the expense one?
tony1973 If you recognize expense earlier in financial reporting than in tax reporting, you will create a deferred tax asset instead. That's why it is not correct.
miso It means rise in deffered tax asset
danlan If tax payable is more than income tax, then a deferred tax asset is created
CoffeeGirl A: tax payable > tax exenses => deferred tax asset
B: taxpayable > tax expenses --> deferred tax asset
C: tax payable < tax expenses -> deferred liability
teje for tax purposes you have not paid the applicable taxes on the revenue yet, as revenue was sold on credit lets say, for accounting purposes they debit a/r and credit sales. For tax purposes no revenue is recorded until cash is received for that sale. As a result taxes payable < income taxes, giving rise to a DTL ... in the future when the cash is collected you pay taxes on this amount! so you may defer taxes today, but eventually somewhere down the line you are going to have to pay that tax or the gov't will shut you down lol
Skrills you go girl (coffeegirl that is)
schweitzdm How are you deducing that revenue being recognized earlier for financial purposes than for tax return purposes is affecting tax payable and/or tax expenses?
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