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Basic Question 3 of 15
Dynamite Corporation paid a two-year property insurance premium on January 2. How much of the expense is recorded for book purposes and deductible for tax purposes in that year, assuming Dynamite is on a calendar-year basis for financial reporting?
A. 100% : 50%
B. 50% : 100%
C. 0% : 100%
Book : Tax
A. 100% : 50%
B. 50% : 100%
C. 0% : 100%
User Contributed Comments 9
| User | Comment |
|---|---|
| danlan | Ok, on financial statement, it's 50% deductible; on tax return report, it's 100% deductible for the first year, then 0% for the second year. |
| mtcfa | On financial statement, the cost is spread over the life of the policy. So if it were 4 years, it would be 25% each year on the financilal statements and 100% for tax. |
| surob | Man, this tax concept is confusing me a lot |
| yyuen000 | Always remember, tax accounting is on cash basis while financial accounting is on accrual basis |
| rfvo | Good Tip Yyuen |
| Fotsta | Thanks yyuen |
| essoh | i am very confused too but trying to reverse the tendency |
| Rosalind | Do we really need to know tax law for the exam? I was a tax consultant in a different jurisdiction before, and I am quite sure that many expenses are not recognized on a cash basis but on accruals basis. It depends on the type of income and expense. Eg. interest income often taxed on accrual (not receipt) basis |
| pigletin | its year end,so 50% is recognized |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
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.