Question

_____ do not affect income tax expense or create DTA/DTL

a) Temporary differences
b) Permanent differences
c) Deferred tax liabilities (DTL)
d) Deferred tax assets (DTA)

Answer 1

Permanent differences are the ones that do not affect income tax expense or create deferred tax assets or liabilities, as they represent differences between financial income and taxable income that do not reverse over time.

Step-by-step explanation:

The differences that do not affect income tax expense or create deferred tax assets (DTA) or deferred tax liabilities (DTL) are b) Permanent differences. Permanent differences are items of revenue or expense that are included in financial income but are never included in taxable income, or vice versa. Examples of permanent differences include expenses that are not deductible for tax purposes, like fines or penalties, and income that is exempt from taxes, such as certain municipal bond interest. These differences result in the actual tax paid differing from the amount of tax expense reported on the income statement, but they do not give rise to deferred tax assets or liabilities.