Final answer:
The correct answer is tax rates expected to be in effect when the timing differences reverse, aligning tax expense with revenue earned in that period.
Step-by-step explanation:
The correct answer is option b. Under the comprehensive deferred interperiod method of tax allocation, deferred taxes are determined on the basis of tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves.
this method takes into account future tax rates rather than historical rates when timing differences originate. The rationale behind using expected future tax rates is to match the tax expense with the revenue as it is earned, regardless of when the actual tax payment is made
This approach aligns with the accounting principle of matching revenue with expenses in the period in which they are incurred.
The correct answer is option b. Under the comprehensive deferred interperiod method of tax allocation, deferred taxes are determined on the basis of tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves.
Deferred taxes arise when there are timing differences between the recognition of income or expenses for tax purposes and for financial reporting purposes. The comprehensive deferred interperiod method of tax allocation allocates these deferred taxes based on the expected future tax rates.
This means that the taxes are determined on the basis of the tax rates that are expected to be in effect when the timing differences reverse themselves.
For example, if a company has an expense that is deductible for tax purposes in a future year, the deferred tax liability will be determined based on the tax rate expected to be in effect when the deduction is taken.