- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 24. Income Taxes
- Subject 2. Deferred Tax Assets and Liabilities
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.)
Accounting purposes | 1,800 | 1,900
Tax purposes | 1,280 | 1,600
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 ??? |