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3Q

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Intermediate Accounting (Kieso)
Found in: Page 1092

Short Answer

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Deferred tax is the type of liability reported under the income statement and the company's balance sheet.

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Step by Step Solution

Meaning of a temporary difference relating to deferred tax computations

The temporary difference in tax computations arises due to the difference in the amounts of pretax financial income and the total taxable income for the current financial year in an organization. The payments are offset against the previous income of the organization.

Examples

(1) Interest received following the municipal bonds.

(2) Premium paid by the organizations on the LIC policies.

(3) Penalty (or fines) paid because of country or accounting law violation.

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