标题: How to define which is taxable and which is pretax [打印本页] 作者: mfleming1983 时间: 2011-7-11 18:36 标题: How to define which is taxable and which is pretax
I have a question from qbank, 7-11 Financial reporting and analysis.
Camphor Associates uses accrual basis for financial reporting purposes and cash basis for tax purposes.
Cash collections from customers is $238,000, and accrued revenue is only $188,000.
Assume expenses at 50% in both cases (i.e., $119,000 on cash basis and $94,000 on accrual basis), and a tax rate of 34%.
What is the deferred tax asset/liability in this case? A deferred tax:
A) asset of $48,960.
B) asset of $8,500.
C) liability of $8,500.
The ans from qbank:
Since taxable income ($119,000) exceeds pretax income ($94,000), Camphor will have a deferred tax asset of $8,500 = [($119,000 ? $94,000)(0.34)].
How do i define which is pretax and which is taxable income?
The way I approach this question is since the company has collect $119,000 cash and accrued revenue of $94,000 which they have not receive, the company will have to pay the tax for the $119,000 collected. Thats why i consider cash collections from customers as Pretax (which multiply by the tax rate to arrive at tax expense) and the accrued amount as the taxable.
Therefore my ans is C which is wrong according to qbank. Is my way of understanding this question wrong? Pls advise.
Thanks作者: ftwcfa 时间: 2011-7-11 18:36
Hi CFACOUNTRY,
thanks for the explanation. Here come the confusing part which i'm still trying to comprehend.
Based on what you have mention that the company actually paid out $40,460 but has only reported $31,960, can i consider the value $40,460 as tax expense?
It is because since $40,460 has to be paid out, it will be consider as an expense. (correct me if i'm wrong)
I'm confused because according to the kaplan notes on LOS 38.b under study session 9, it defines deferred tax liability as:
A deferred tax liability is created when income tax expense (income statement) is greater than tax payable due to temporary difference.
