Financial statement carrying amount exceeds tax basis for liabilities in:

Question

Options

• ADeferred liabilities
• BTax-basis balance sheet
• CFuture taxable amounts
• DFuture deductible amounts

• A
  9% (3)
• B
  3% (1)
• C
  18% (6)
• D
  70% (23)

Explanation

When a liability's carrying amount (book value) exceeds its tax basis, the difference represents a future tax deduction - because you've recognized more expense on the financial statements than tax rules allow right now, so when that liability settles, you'll get a larger deduction at that point. This is the definition of a future deductible amount, which gives rise to a deferred tax asset (D is correct).

Why the distractors fail:

• A (Deferred liabilities) - Not a defined technical term in this context; carrying amount > tax basis for a liability actually produces a deferred tax asset, not a deferred liability.
• B (Tax-basis balance sheet) - This is simply a balance sheet prepared under tax rules; it describes a reporting format, not a consequence of the carrying-amount/tax-basis relationship.
• C (Future taxable amounts) - This arises in the opposite scenario: when an asset's carrying amount exceeds its tax basis (e.g., accelerated tax depreciation), resulting in a deferred tax liability, not an asset.

Memory tip: Use the acronym "LAD" - Liability Above (carrying amount) = Deductible later. Whenever a liability on the books is bigger than what tax has recognized, you'll deduct the excess when it settles → future deductible amount.

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