A deferred tax asset for deductible temporary differences expected to be realized by carry-back would be measured using the tax law and rates for the year in which the refund is expected to be…

Question

Options

• ATrue
• BFalse

• A
  74% (35)
• B
  26% (12)

Explanation

Option A is correct because under ASC 740 (US GAAP) and IAS 12 (IFRS), deferred tax assets arising from deductible temporary differences that will be realized through a carry-back are measured using the enacted tax rates for the carry-back period - the year to which the loss is carried back - not the current or future year's rates. This makes intuitive sense: the refund amount depends on what tax was actually paid in that prior year, which was governed by that period's tax law. Option B is wrong simply because there is no exception to this measurement rule - it applies consistently whether realization occurs via carry-back or carry-forward. Memory tip: Think of it as "you get back what you paid at the rate you paid it" - a carry-back is a refund of taxes from a past year, so you measure the asset at the past year's rate.

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