Which of the following will most likely result in a permanent difference between taxable income and pre-tax income? A. A firm deducts warranty expenses from its income statement but does not deduct them from its tax statements until the receivables are deemed worthless. B. A firm enjoys tax credits on the imports of certain medicines. C. A firm uses different methods of depreciation for reporting purposes and tax purposes.

The tax credits will most likely result in a permanent difference between pre-tax income and taxable income as the tax credits are not expected to reverse in the future. Warranty expenses and differences in depreciation methods result in temporary differences as they are expected to reverse in the future.

CFA Level 1 Question Of The Week - Financial Reporting And Analysis (9) - CFA Level 1

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This topic has 1 reply, 1 voice, and was last updated May-199:35 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  - CFA Charterholder
  20 May 2019 at 6:17 am
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  Which of the following will most likely result in a permanent difference between taxable income and pre-tax income?
  - A. A firm deducts warranty expenses from its income statement but does not
    deduct them from its tax statements until the receivables are deemed
    worthless.
  - B. A firm enjoys tax credits on the imports of certain medicines.
  - C. A firm uses different methods of depreciation for reporting purposes and
    tax purposes.
- Matt_AnalystPrep
  Participant
  - CFA Charterholder
  24 May 2019 at 9:35 am
  Up
  4
  ::
  The tax credits will most likely result in a permanent difference between pre-tax income and taxable income as the tax credits are not expected to reverse in the future.
  
  Warranty expenses and differences in depreciation methods result in temporary differences as they are expected to reverse in the future.
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