Question

Which of the following situations will not cause a deferred income tax amount to be recorded?...

Which of the following situations will not cause a deferred income tax amount to be recorded?

                A)    An expense that is recognized in 20A for income tax purposes and in 20B for financial statement purposes.

                B)    An expense that is recognized in 20A for financial statement purposes but never will be deductible for income tax purposes.

                C)    A revenue is recognized in 20A for income tax purposes and in 20B for financial statement purposes.

                D)    All of the above situations would cause a deferred income tax amount.

Business   Accounting   
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Answer #1

Answer is B)

A Deferred income tax is caused due to temporary difference that is an expense or income treatment in income tax is different from financial accounting. For example different depreciation rates in income tax and financial accounting will lead to timing difference. However if an income is never taxable income or disallowed expense in income tax it will lead to permanent difference and there is no deferred income tax to be recorded. Hence Option B) there is permanent difference and no need to create deferred income tax

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