The evaluation of the realizability of ___________assets is made on a gross as opposed to a net basis

The correct answer is C. deferred tax. Deferred tax assets (option C) are evaluated for realizability on a gross basis under accounting standards (e.g., ASC 740). This means the full deferred tax asset is assessed first - determining whether it is "more likely than not" to be realized - and only then is a separate…

Question

Options

ATax rate
Bvaluation tax
Cdeferred tax
Dsegregated

How the community answered

(26 responses)

A
4% (1)
B
19% (5)
C
69% (18)
D
8% (2)

Explanation

Deferred tax assets (option C) are evaluated for realizability on a gross basis under accounting standards (e.g., ASC 740). This means the full deferred tax asset is assessed first - determining whether it is "more likely than not" to be realized - and only then is a separate valuation allowance recorded to reduce it, rather than netting the two together from the start.

Why the distractors are wrong:

A (Tax rate): Tax rates are applied to temporary differences to calculate deferred taxes; they are not "realized" in the gross/net sense this question addresses.
B (Valuation tax): This is not a recognized accounting term - it appears to conflate "valuation allowance" with "tax," making it a nonsense distractor.
D (Segregated): "Segregated assets" relate to trust or insurance concepts, not to deferred tax realizability assessment.

Memory tip: Think of it as "Gross before the cut" - you always measure the full deferred tax asset first (gross), then decide how much of a valuation allowance to cut from it. The evaluation of whether it's realizable happens before any netting occurs.

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