Answered Essay: Which one is not correct in the context of tax accounting?

Which one is not correct in the context of tax accounting?

a. Deferred tax liability might be resulted when tax expense on income statement is less than tax payment based on tax code.

b. Non taxable expense causes permanent differences between pretax accounting income and taxable income.

c. Corporate income tax is an expense, not a distribution of profits to the government

d. Deferred tax assets might be resulted from Loss Carryback.

Expert Answer

 

The Given Statement:

“Deferred tax liability might be resulted when tax expense on income statement is less than tax payment based on tax code”

Is not true. Given below is the explanation in support of above decision:

When the Accounting Income is greater and Income as per Tax code is less, Then we have paid taxes less as per our Accounting Income, So we need to pay them in future so we need to create a Liability for the same in the current statement. So, we create a Deferred Tax Liability.

And

When the Accounting Income is Less and Income as per Tax code is Greater, Then we have paid taxes more as per our Accounting Income, So we will get recovered in the future years, So we record the same as an asset in the current statement. So, we create a Deferred Tax Asset.

In the given statement, Tax paid as per tax code is higher than Tax expense as per income statement is less. So, we have paid higher taxes as per income statement so we need to have Deferred Tax Asset, But in the statement it is saying to create a Deferred Tax Liability, It is Completely incorrect.

Rest all statement are True.

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