If the difference in book and tax value is $8m in the next fiscal year and the tax rate is 30%, what is the Deferred Tax Liability created in that year?

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Multiple Choice

If the difference in book and tax value is $8m in the next fiscal year and the tax rate is 30%, what is the Deferred Tax Liability created in that year?

Explanation:
Deferred tax liability arises from timing differences between how gains and losses are recognized for financial reporting and for tax purposes. When the book value of an asset exceeds its tax value by a given amount, that difference is a taxable temporary difference, meaning more tax will be payable in the future as the difference reverses. The amount of the liability is the temporary difference times the tax rate. Here, the difference is 8 million and the tax rate is 30%, so the DTL is 8,000,000 × 0.30 = 2,400,000. So the Deferred Tax Liability created in that year is 2.4 million.

Deferred tax liability arises from timing differences between how gains and losses are recognized for financial reporting and for tax purposes. When the book value of an asset exceeds its tax value by a given amount, that difference is a taxable temporary difference, meaning more tax will be payable in the future as the difference reverses. The amount of the liability is the temporary difference times the tax rate.

Here, the difference is 8 million and the tax rate is 30%, so the DTL is 8,000,000 × 0.30 = 2,400,000. So the Deferred Tax Liability created in that year is 2.4 million.

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