Question & Answer: Which one is not correct in the context of tax accounting? a. corporate income ta…..

Which one is not correct in the context of tax accounting? a. corporate income tax is an expense, not a distribution of profits to the government. b. deferred tax assets might be resulted from loss carrybacks. c. non taxable expenses cause permanent differences between pretax accounting income and taxable income. d. deferred tax liability might be resulted when tax expense on income statement is less than tax payment based on tax code.

Expert Answer

a. corporate income tax is an expense, not a distribution of profits to the government – this statement is correct and therefore, corporate income tax is shown as an expense in the Income statement.

b. deferred tax assets might be resulted from loss carrybacks – this statement is correct as loss is an asset.

c. non taxable expenses cause permanent differences between pretax accounting income and taxable income – this statement is correct like goodwill amortisation expense under purchase method of acquisitions is an non taxable expense which cause permanent differences .

d. deferred tax liability might be resulted when tax expense on income statement is less than tax payment based on tax code – this statement is incorrect

The correct statement is – deferred tax liability might be resulted when tax expense on income statement is higher than tax payment based on tax code .

Because here we will be supposed to pay higher tax according to income statement but will pay lower tax due to lesser income calculated under tax code, therefore , it will become liability as in future we will have to pay higher tax.

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