Question

Which of the following statements are true regarding the accounting basis and tax basis for deferred development costs?

A. Deferred development costs on the SFP result in a deferred income tax liability.
B. Deferred development costs result in deductible temporary differences.
C. The accounting basis for deferred development costs is the amount recorded on the statement of financial position (SFP).
D. The tax basis for deferred development costs is nil.

Answer 1

Statement A and B are true, while statements C and D are false.

Step-by-step explanation:

Statement A is true. Deferred development costs on the statement of financial position (SFP) result in a deferred income tax liability. This means that the company has recognized a liability for future income taxes associated with these costs.

Statement B is true. Deferred development costs result in deductible temporary differences. This means that the expenses associated with the development costs will be deductible for tax purposes in the future.

Statement C is false. The accounting basis for deferred development costs is the amount capitalized and amortized on the statement of financial position (SFP) over time, not the initial amount recorded.

Statement D is false. The tax basis for deferred development costs is the capitalized amount that will be deducted for tax purposes over time, not nil.