Deferred taxes

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veerasam

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Which of the following statements about deferred taxes is *most likely* to be true?
a. Under the liability method of accounting for deferred taxes, only the future consequences of events that lead to tax obligations are recognised on the balance sheet.
b. Under SFAS 109, a valuation allowance is required if it is reasonably possible that all or portion of the deferred tax asset will not be realised.
c. Deferred tax items arise only from timing differences in the recognition of revenues and expenses on either the financial statements and tax returns.
d. Deferred tax assets arise when future tax obligations are likely to be less than future income tax expense due to the accelerated recognition of certain taxable events.
 
I'd go for A because C is a bit of a narrow description. But I may be wrong because it's a calculated guess.
 
This is a tricky one - just one word or phrase in each choice could turn a Yes to a No.
Fine-print.
 
Not A: There can be deferred tax assets as well.
Not B: SFAS 109 requires a "more likely than not" test.
Not C: Timing differences can arise from something other than revenues and expenses.
D: true
 
wats is more likely than not test ??

veerasam, can u elaborate upon the answer .. Pls..

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Under SFAS 109, a valuation allowance is required if it is *more likely than not* that all or portion of the deferred tax asset will not be realised.
 
d. Deferred tax assets arise when future tax obligations are likely to be less than future income tax expense due to the accelerated recognition of certain taxable events.

I thought if future tax obligations are LESS than future income tax expenses, then it'll result in a deferred tax liability?

Shouldn't D be false?
 
Tenchi3211 Wrote:
-------------------------------------------------------
> d. Deferred tax assets arise when future tax
> obligations are likely to be less than future
> income tax expense due to the accelerated
> recognition of certain taxable events.
>
> I thought if future tax obligations are LESS than
> future income tax expenses, then it'll result in
> a deferred tax liability?
>
> Shouldn't D be false?


In future, tax pay to Gov is less than expected. It is a benefit - asset. This asset arises as you have already paid more today.
 
B is wrong --> FASB website says ...A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The key words are "it is more likely than not", this means greater than 50%...

"reasonably possible" in question B simply does not have the same meaning

D --> is true -->

TP > TE => DTA, in future years for reversal TP < TE has to be true.
 
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