Question

Match the appropriate items to each type of temporary differences.

Generally arise when there are differences that result in current accounting income being greater than taxable income

Give rise to deferred tax assets

Generally arise when the tax base of the assets is greater than the carrying amount

Arise when the tax base of the liabilities is greater than the carrying amount

Arise when the carrying amount of the liabilities is greater than the tax base

Give rise to deferred tax liabilities

Answer 1

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Answer 2

1) Generally arise when there are differences that result in current accounting income being greater than taxable income. => Give rise to deferred tax assets.

2) Generally arise when the tax base of the assets is greater than the carrying amount. =>  Arise when the tax base of the liabilities is greater than the carrying amount.

3) When the carrying amount of an asset or a liability is greater than its tax base, => then there is a taxable temporary difference and it gives rise to deferred tax liability.

• Deferred tax liability commonly arises when depreciating fixed assets, recognizing revenues, and valuing inventories. Because these differences are temporary, and a company expects to settle its tax liability (and pay increased taxes) in the future, it records a deferred tax liability.