A company incurs a capital expenditure that may be amortized over fi ve years for accounting purposes, but over four years for tax purposes. Th e company will most likelyrecord:A . a deferred tax asset.B . a deferred tax liability.C . no deferred tax asset or liability.

A company incurs a capital expenditure that may be amortized over fi ve years for accounting purposes, but over four years for tax purposes. Th e company will most likelyrecord:A . a deferred tax asset.B . a deferred tax liability.C . no deferred tax asset or liability.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter14: Taxes On The Financial Statements

Section: Chapter Questions

Problem 41P

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Question

A company incurs a capital expenditure that may be amortized over fi ve years for accounting purposes, but over four years for tax purposes. Th e company will most likely
record:
A . a deferred tax asset.
B . a deferred tax liability.
C . no deferred tax asset or liability.

Definition Definition Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.

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