Question

A deferred tax liability is classified on the balance sheet as either a current or a noncurrent liability. The current amount of a deferred tax liability should generally be

a. the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year.
b. totally eliminated from the financial statements if the amount is related to a noncurrent asset.
c. based on the classification of the related asset or liability for financial reporting purposes.
d. the total of all deferred tax consequences that are not expected to reverse in the operating period or one year, whichever is greater

Answer 1

a. the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year.

The current amount of a deferred tax liability generally reflects the net deferred tax consequences due within the next year, based on temporary differences expected to become taxable.

Step-by-step explanation:

The current amount of a deferred tax liability should generally be the net deferred tax consequences of temporary differences that will result in net taxable amounts during the next year.

This classification is guided by the principle that the current portion of a deferred tax liability is expected to be settled within one year or the operating cycle, if longer.

Unlike a time deposit, which ties funds for a certain period, or a unit of account, which measures market values, the classification of a deferred tax liability relates to the anticipation of future taxable amounts derived from existing temporary differences.

It's integral to understand that deferred tax liabilities represent future tax payments due to temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base.

Entities use T-accounts to organize financial information, often in a two-column format. In these accounts, assets and liabilities are listed on opposing sides to facilitate clarity and accuracy in financial reporting.