MDB had a $1,200 temporary tax 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 25% and Parliament is discussing an increase in the corporate income tax rates for 2014 and 2015 to 35%.The deferred income tax liability related to this temporary difference at the end of 2013 would be:
A) $100
B) $300
C) $200
D) $420

Question

Quizplus · Accepted Answer

The temporary difference of $1,200 will reverse equally over three years, meaning $400 will reverse each year. At the end of 2013, $800 remains to reverse in 2014 and 2015. If the tax rate increases to 35% for these years, the deferred tax liability would be $800 * 35% = $280. However, since the rate for 2013 is 25%, the liability for 2013 is $400 * 25% = $100. Adding these gives $100 + $280 = $380, but since the question asks for the liability at the end of 2013, it should be calculated with the current rate, which is $800 * 25% = $200.

MDB Had a $1,200 Temporary Tax Difference for Deferred Gross