CFA Practice Question

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CFA Practice Question

Taxable temporary differences result in a deferred tax ______ when the carrying amount of an asset is ______ than its tax base.

A. asset; less
B. liability; more
C. liability; less
Correct Answer: B

Taxable temporary differences always result in a deferred tax liability and taxable amount later.

User Contributed Comments 11

User Comment
panvino Page 397 of the notes reads as follows: Taxable temporary differences result in a deferred tax liability when the carrying amount of an asset EXCEEDS its tax base and, in the case of a liability, when the tax base of the liability exceeds its carrying amount.
mattg Conversely, a deferred tax asset that results when an asset's carrying amount is less than it's tax base would be categorized as a DEDUCTIBLE temporary difference
prajacti thanks mattg! cleared my confusion about "taxable" and "deductible" temp diff.
johntan1979 So how do you explain the table in the notes where DTL can be on both sides of the balance sheet, and can be (carrying > tax base) as well as (carrying < tax base)???

Don't you just love taxes? :)
gill15 2 more questions...almost...

crazy thing is....I finally get this.
Shaan23 John --- I think and its weird as hell that you assume the Asset side if nothing mentioned.

If unearned R was mentioned then everything would be reversed.....pretty stupid though.
Shaan23 My actually says in the question Carrying Value of ASSET......
PHawk A can be excluded since either B or C must be true.
farhan92 how i remember it is asset shoots (>) the sheriff and becomes a liability

Asset => CV> tax Base = def tax liab.
Davidrh In the notes it says: "The carrying amount of the accounts receivable becomes $97,000. The tax base of the asset still remains $100,000. The firm has a deductible temporary difference of $3,000- Management should recognize a deferred tax asset in respect to the deductible temporary difference."

I don't see how Answer A would be wrong then. Can someone please explain?
olebsntuka @Davidrh: A is wrong because the question specifically asks about Taxable Temporary Differences. so when the carrying amount of an asset is less than its tax base, you get a deductible temporary difference (not a taxable temporary difference).
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