Explanation:
Explanation:
The correct answer is A because the carrying amount of the research costs is zero (fully expensed for financial accounting), while the tax base is reduced by only one-fifth of the total cost in the first year. This creates a deductible temporary difference, as the carrying amount is less than the tax base. Since taxable profit will be available to utilize this difference, it results in a deferred tax asset.
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A company incurred research costs, expensed entirely in the current fiscal year for financial reporting purposes. However, tax laws mandate expensing these costs over a 5-year period. Assuming taxable profit will be available to utilize the deductible temporary differences, the company will most likely record in the current fiscal year:
A
A deferred tax asset.
B
A deferred tax liability.
C
Neither a deferred tax asset nor a deferred tax liability.