FGH had a $1,200 temporary difference for deferred gross margin on instalment sales at the end of 2012.This temporary difference will reverse equally during 2013,2014 and 2015.The enacted corporate income tax rate is 48% and government is discussing a reduction in the corporate income tax rates for 2014 and 2015 to 38%.The deferred income tax liability related to this temporary difference at the end of 2013 would be:
A) $192
B) $248
C) $384
D) $576

Question

Quizplus · Accepted Answer

The deferred income tax liability at the end of 2013 is calculated based on the temporary difference that will reverse in the future years. Since $400 will reverse in 2014 and $400 in 2015, and the tax rate for these years is expected to be 38%, the liability is $400 * 38% + $400 * 38% = $304. The $400 reversing in 2013 will use the 48% rate, so $400 * 48% = $192. Total liability = $192 + $304 = $496. However, since the question asks for the liability at the end of 2013, only the $400 reversing in 2014 and 2015 at 38% is considered, which is $304.

FGH Had a $1,200 Temporary Difference for Deferred Gross Margin