which of the following situations will not cause a deferred income tax amount to be recorded ?
a - expense that is recognized in 20A for income tax purposes and in 20 B for financial statement purposes
b - expense that is recognized in 20A for financial statement purposes but will never be deductible for income tax purposes
c - a revenue recognized in 20A for income tax purposes and in 20 B for financial statement purposes
d - all of the above would cause a deferred income tax amount
e - none of the above would cause a deferred income tax amount
To determine which of the situations will not cause a deferred income tax amount to be recorded, let's go through each option one by one:
a - Expense that is recognized in 20A for income tax purposes and in 20B for financial statement purposes: In this situation, if an expense is recognized differently for income tax purposes and in financial statements, it creates a timing difference. This timing difference results in deferred income taxes being recorded because the expense would be deductible at a different time for tax purposes than for financial statement purposes. Therefore, option A would cause a deferred income tax amount to be recorded.
b - Expense that is recognized in 20A for financial statement purposes but will never be deductible for income tax purposes: In this scenario, if an expense is recognized only for financial statement purposes and is not deductible for income tax purposes, it would result in a permanent difference rather than a timing difference. Permanent differences do not create deferred income tax amounts as they do not reverse over time. Therefore, option B would not cause a deferred income tax amount to be recorded.
c - Revenue recognized in 20A for income tax purposes and in 20B for financial statement purposes: Similar to option A, if a revenue is recognized differently for income tax purposes and in financial statements, it creates a timing difference. This timing difference would result in deferred income taxes being recorded as the revenue would be taxable at a different time for tax purposes than for financial statement purposes. Therefore, option C would cause a deferred income tax amount to be recorded.
d - All of the above would cause a deferred income tax amount: This option suggests that all the listed situations would cause deferred income tax amounts to be recorded. However, we have established that option B would not cause a deferred income tax amount to be recorded. Hence, option D is incorrect.
e - None of the above would cause a deferred income tax amount: Based on the analysis provided above, we have determined that option B would not cause a deferred income tax amount to be recorded. Therefore, option E is the correct answer.