Which of the following is NOT the step in determining deferred tax assets and liabilities?

Question

Options

• AIdentification
• BMeasurement
• CReduction
• DValuation

• A
  5% (1)
• B
  9% (2)
• C
  14% (3)
• D
  73% (16)

Explanation

Valuation (D) is not a recognized step in the deferred tax determination process. The three accepted steps are: Identification (identifying temporary differences between book and tax bases), Measurement (calculating the deferred tax amount using the enacted tax rate), and Reduction (applying a valuation allowance to reduce deferred tax assets that are unlikely to be realized).

Options A, B, and C are distractors because they each represent a genuine, distinct phase in the process - you must first identify what differences exist, then measure their tax impact, then reduce the asset if recovery is not "more likely than not." Option D trips up test-takers because valuation allowance is a real concept in deferred tax accounting, but "valuation" alone is not a standalone procedural step - it's embedded within the Reduction phase.

Memory tip: Use the acronym IMR (Identify → Measure → Reduce). If you see "Valuation" as a listed step, recognize it as a distractor borrowing the language of "valuation allowance" without being a step in its own right.

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