Question

Ouyang Inc. reported the following financial information:

Table: Ouyang Inc. Financial Information

Financial Information	2013	2012
Deferred tax asset	30,293	38,473
Valuation allowance	3,829	1,728

Which of the following is more likely regarding the change of the valuation allowance?

a)	Its total assets were increased in 2013;

b)	It had an equal amount of deferred tax assets and deferred tax liabilities;

c)	It was more profitable in 2013;

d)	It expects a higher likelihood to earn sufficient taxable income to fully take advantage of the deferred tax asset before the deferred tax asset expires;

e)	It expects a lower likelihood to earn sufficient taxable income to fully take advantage of the deferred tax asset before the deferred tax asset expires;

Answer 1

Ans e It expects a lower likelihood to earn sufficient taxable income to fully take advantage of the deferred tax asset before the deferred tax asset expires;

explanation

Valuation allowance is an allowance which is created for a DTA when it is likeley that more than 50% chances that the entitu would not realize some portion of DTA. So if there is increase in valuation allowance this means that company wont earn sufficient income to take fully advantage of DTA