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Basic Question 8 of 20
Assuming that a firm had taxable income in the previous two-year period, the tax effect of a net operating loss (NOL) usually ______
B. results in a current receivable at the end of the NOL year.
C. is subject to a valuation allowance.
A. is reflected as a deferred tax asset/liability at the end of the NOL year.
B. results in a current receivable at the end of the NOL year.
C. is subject to a valuation allowance.
User Contributed Comments 7
| User | Comment |
|---|---|
| stranger | This is treated as an adjustment against previous taxes payable and hence results in a refund or income tax receivable. |
| kalps | Income tax receivable amount if it can be carried back against previous two periods, however if there was no profits in previous two years then it may be a deferred tax asset whereby it cab be set off against future tax liability |
| freshginger | What's wrong with A? |
| mtcfa | I think the answer is correct because it says there were profits in previous years. Otherwise it could be potentially be a deferred tax asset and there fore subject to a valuation allowance. Thus, choices A and B could both be correct. The assumption of previous years taxes is the only thing that holds this question together. |
| thekid | 'A' is wrong b/c it states "deferred tax asset/LIABILITY"....which means it would result in a deferred tax asset (which is correct) OR a deferred tax LIABILITY (which is incorrect). |
| sshetty2 | Sounds similar to how Mr. Trump got away with avoiding to pay millions in tax dollars |
| Ewan2015 | Uh talking of Mr Trump I believe his new Tax Cuts and Jobs Act eliminates the carryback period in almost all instances so the correct answer under new law would be A. |
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Craig Baugh
Learning Outcome Statements
explain how deferred tax liabilities and assets are created and the factors that determine how a company's deferred tax liabilities and assets should be treated for the purposes of financial analysis
CFA® 2025 Level I Curriculum, Volume 3, Module 9.