Question

Question 1

Taxable amounts are temporary differences that:

	A - decrease taxable income in future years
	B - require the recording of a deferred tax liability

	C - require the recording of a deferred tax asset.
	D - none of the above

Answer 1

Answer is B - require the recording of a deferred tax liability

A deferred tax liability is recognized for temporary differences that will result in taxable amounts in future years. Deferred tax liability is recognised innthe books of accounts when company is showing more income or less expenditure in the books but income tax authorities takes less income or more expenditure in the books for purpose of calculating taxes. For example, depreciation expense as per management is $1000 and it has been debited in the books of accounts but as per income tax, depreciation expense is $1200 and it will be taken for computing taxes.Difference of $200 ($1200 - $1000) is temporary difference and deferred tax liability will be calculated on $200 according to rate of tax.