Question

Which of the following statements correctly describe the accounting basis and tax basis of an asset?

A. The accounting base of an asset plus deductible temporary differences minus taxable temporary differences is equal to the tax base of an asset.
B. The accounting base of an asset minus deductible temporary differences plus taxable temporary differences is equal to the tax base of an asset.

Answer 1

Statement B correctly describes the relationship between the accounting base of an asset and its tax base, which is the accounting base minus deductible temporary differences plus taxable temporary differences.

Step-by-step explanation:

The question pertains to the difference between the accounting basis and tax basis of an asset. Statement B accurately describes how to reconcile the two figures. The accounting basis of an asset minus deductible temporary differences plus taxable temporary differences is equal to the tax base of an asset.

Temporary differences arise because certain items may be recognized in different periods for accounting purposes versus for tax purposes. Deductible temporary differences will lower the tax base of an asset, while taxable temporary differences will increase it.