Question

a company paid in the current year rent in advance for the next two years. in its accounting income the rent expanse will be recognized over the next 2 years. for the tax purpose the rent is deductibale when paid . this situation would require which of the follwing:

as it permanent difference , no defeered tax asset or liability should be created

creating a deffered tax asset

the above situation doesnt create any difference btween accounting and taxable income

creating a deffered tax liability

Answer 1

Since the entire amount will be allowed as expense in the current year for taxation purpose, the income will be lower for current year and higher than the accounting income for next year

This is a temporary difference and hence, will lead to creation of Deferred tax liability as more amount will be required to be paid into future

Permanent differences never reverse

Asset is created when higher taxes are paid in current year

Hence, the answer is

creating a deferred tax liability