- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 27. Income Taxes
- Subject 4. Temporary versus Permanent Differences
CFA Practice Question
Item A is recognized for financial reporting but not allowed by tax legislation. Item B is recognized for tax reporting but not for financial reporting. A ______ difference will result from item A and a ______ difference will result from item B.
A. permanent; temporary
B. permanent; permanent
C. temporary; permanent
Explanation: The differences between tax and financial reporting of these items will not be reversed, so they are both permanent differences.
User Contributed Comments 2
| User | Comment |
|---|---|
| CFunder | Something may be recorded for tax purposes cash received on revenue and if you are recording it under the cost recovery method you wouldn't have recorded for financial statement purposes. Which would make A correct as well. Just a thought.... |
| boddunah | i think answer b is wrong, item B should lead to temporary diff.permanent diff = item is not recognised for tax purposes by tax authorities ,tax credit and if company buys plant and equipment on regular basis that results in replacement of def. tax liabilities every year. |