CFA CFA Level 1 Question of the Week – Financial Reporting and Analysis

Question of the Week – Financial Reporting and Analysis

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    • AdaptPrep
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      A bookstore earned $200,000 over the past year. At a tax rate of 40%, that bookstore incurs an income tax expense of $80,000. Under which of the following accounting systems would the expense typically be categorized as an operating activity?

      I. IFRS
      II. U.S. GAAP

      • I only
      • II only
      • I and II
    • CFAcharterwannabe
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      Generally both GAAP & IFRS recognise tax under operating. But IFRS requires taxes related to investing or financing to be classified accordingly.

    • AdaptPrep
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      @CFAcharterwannabe‌ Correct! To reiterate, under both IFRS and U.S. GAAP, income tax expense on operating income is an operating expense. The difference between the two is when the income comes from a financing or an investing activity. In that case, the expense would still be an operating expense under U.S. GAAP but not under IFRS.

    • BeanCounter
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      It might help if the original question identified that that it is asking where in a cash flow statement the expense would be reported (assuming it’s been paid).

    • shannondaily
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      Woo! I got it right. 🙂 

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