CFA CFA Level 1 Officer’s Life Insurance Premiums and Cover Value

Officer’s Life Insurance Premiums and Cover Value

  • This topic has 3 replies, 2 voices, and was last updated Nov-17 by Ruben.
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    • Ruben
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      I would like to understand the example given in Schweser regarding the temporary and permanent differences between taxes payable and income tax expense.

      1. Officer’s Life Insurance

      Tax Base = 0; Carrying Value = 0 (Is this the value of premiums or the cover value, and if its either of these, how each would be treated as?)

      2. Municipal bond interest earned

      Tax Base = 5,000; Carrying Value = 5,000 (Why is it considered an asset, when ideally it should appear only on the income statement)

    • Ruben
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      This is an example from Study Session 9 – Income Taxes

    • vincentt
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      @Ruben‌ Hello, i don’t have the books you mentioned, maybe you can post the whole question or take a clear picture of the page and post it here?



    • Ruben
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      Here’s the whole question –

      Example: Temporary and permanent differences between taxes payable and income tax expense –

      Using the following table, identify the type of difference (taxable temporary, deductible temporary, or permanent), and determine if the difference creates a DTA or a DTL.

                                                       Tax Base                  Carrying Value            Type of Difference          Result

      Assets:

      Depreciable Equipment               $ 80,000                   $ 90,000

      Research and development         $ 50,000                     $ 0

      Accounts Receivable                   $ 20,000                    $ 18,500

      Municipal Bond Interest              $ 5,000                     $ 5,000

      Liabilities:

      Customer Advance                      $ 0                           $ 10,000

      Warranty Liability                         $ 0                           $ 5,000

      Officers’ Life Insurance                $ 0                            $ 0

      Note Payable                              $ 30,000                    $ 30,000

      Interest                                       $ 0                           $ 0

      Now back to my doubts regarding –

      1. Officer’s Life Insurance

      Tax Base = 0; Carrying Value =
      0 (Is this the value of premiums or the cover value, and if its either
      of these, how each would be treated in the financial statements for financial as well as tax reporting?)

      2. Municipal bond interest earned

      Tax
      Base = 5,000; Carrying Value = 5,000 (Why is it considered an asset,
      when ideally it should appear only on the income statement, I believe its recorded in the balance sheet since carrying value of the asset is given to be $ 5,000)

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