Which of the following statements concerning deferred taxes is correct?
A)Deferred taxes will not be found in the asset section of a balance sheet.
B)Deferred taxes arise from permanent differences in GAAP and tax accounting.
C)Deferred taxes will only decrease when a cash payment is made.
D)Deferred taxes arising from the depreciation of a specific asset will ultimately reduce to zero as the item is depreciated.

Question

Quizplus · Accepted Answer

Deferred taxes related to the depreciation of an asset will indeed reduce to zero over time as the asset is fully depreciated. This occurs because the temporary differences between the tax base and the accounting base of the asset, which give rise to the deferred taxes, will reconcile as the asset is depreciated in both the financial statements and tax returns.

Which of the Following Statements Concerning Deferred Taxes Is Correct