Development costs can be capitalized and amortized in the income statement over several periods while the full amount is tax deductible in the period in which the development costs were incurred.Which of the following accounting items will be generated by this temporary difference?

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Quizplus · Accepted Answer

The temporary difference between the tax deductibility of the full amount of development costs in the period incurred versus their capitalized and amortized treatment in the income statement will result in a deferred tax liability, as the amount of taxable income will be higher in the period that the development costs are capitalized and amortized than the period in which they were incurred. The deferred tax liability represents the additional tax that will be payable in future periods due to this temporary difference.

Development Costs Can Be Capitalized and Amortized in the Income