CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

A company purchased a $2,000 million long-term asset in 2013 when the corporate tax rate was 30 percent. (All figures in $ millions.)

Asset year-end value for | 2014 | 2013
Accounting purposes | 1,800 | 1,900
Tax purposes | 1,280 | 1,600

On January 15, 2014, the government lowered the corporate tax rate to 25 percent for 2014 and beyond. The deferred tax liability ($) as of 31 December 2014 is closest to ______.
A. 205
B. 156
C. 130
Explanation: The deferred tax liability equals the difference between the value for accounting and the value for tax times the current tax rate in effect. (1,800 - 1,280) x 0.25 = 520 x 0.25 = 130

User Contributed Comments 2

User Comment
mjhuff Is the previous year's liability assumed to be a part of the "accounting purposes" for 2014?
kingirm why asset value is used for tax purpose ???
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