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Basic Question 12 of 15
A firm incurred $100,000 in R&D costs. They were all expensed in the current fiscal year. For tax reporting purposes $30,000 was expensed. The tax base of the R&D costs is ______.
B. $70,000
C. $30,000
A. $100,000
B. $70,000
C. $30,000
User Contributed Comments 7
| User | Comment |
|---|---|
| johntan1979 | So tax base means the deductible amount, or non-taxable amount, right? How does this relates to deferred tax? Aren't they the same? *super confused* |
| gill15 | I cant beleive i got one right. |
| GouldenOne | That just doesn't make sense. The question should say tax base after the R&D expense. That questions makes no sense and you would never see it like that in the real world |
| microeconomist | Firm incurred a cost. On the tax form, 30% of the cost was expensed away; the IRS imposed a tax on the remaining 70%. Tax base is the sum of money you are being taxed on --in this case, $70,000. |
| maryprz14 | great explanation MICROECONOMIST. thank you |
| dbedford | In this case the word "expensed" is the key. Expense with a financial report means to recognize on the income statement. The word expense in the tax sense means a tax write off. So the original tax base is $100k;however, the government let you write off $30k bringing the tax base to $70k |
| mlaique | I consider tax base as the carrying amount for the future years. So, if we expensed 30K the first year, we have 70K remaining. Keep in mind: 'Tax Base' = tax jargon for future outstanding amount 'Carry Amount' = accounting jargon for future outstanding amount Therefore, Carry Amount (Accounting) - Tax Base (Taxes) > 0 is a Deferred Tax Liability because Income Tax Expense (Accounting) > Income Tax Payable (Taxes) |
I used your notes and passed ... highly recommended!
Lauren
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® 2024 Level I Curriculum, Volume 3, Module 9.