Question

Supreme Corporation reports pretax accounting income of $600,000, but due to a single temporary difference, taxable income is only $500,000. At beginning of the year, no temporary differences existed. Assuming a tax rate of 40%, the amount of deferred tax liability or deferred tax asset to be reported this year would be:

a. Deferred tax asset of $40,000
b. Deferred tax liability of $40,000
c. Deferred tax asset of $60,000
d. Deferred tax liability of $60,000

Answer 1

	Income	Tax Rate	Tax Amount
Income as per Accounting Income =	$            6,00,000	40%	$       2,40,000
Income as per Taxable Income =	$            5,00,000	40%	$       2,00,000
Difference	$            1,00,000	40%	$           40,000
As per accounting income we have to pay the tax of Rs. $ 240,000
But in actual we have to pay the only $ 240,000
So, There is saving of tax of $ 40,000 , So in future we have to pay the tax difference we can create aliability against pending tax difference.
So these difference is called defferred Tax Liability
So, Answer = Option B = Deferred tax Liability of $40,000