A Deductible Temporary Difference Is Expected to Lead to the Payment

question 3

Multiple Choice

A deductible temporary difference is expected to lead to the payment of:

• A)more tax in the future and gives rise to a deferred tax asset
• B)less tax in the future and gives rise to a deferred tax asset
• C)more tax in the future and gives rise to a deferred tax liability
• D)less tax in the future and gives rise to a deferred tax liability.

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Definitions:

Proportional Tax

At the individual level, a tax whose average tax rate remains constant as the taxpayer’s income increases or decreases. At the national level, a tax for which the average tax rate (= tax revenue/GDP) remains constant as GDP rises or falls.

Economy

The system by which a country's money and goods are produced and used, encompassing production, distribution, and consumption.

Tax-Transfer System

The mechanism through which governments collect taxes from individuals and businesses and redistribute the revenue in the form of government spending or transfers.

Progressive

Relating to progressive policies or taxes, which are designed to have a greater impact on those who are able to pay more.