Can someone please explain deferred tax liability, especially this one:
If timing differences that give rise to a deferred tax liability are not expected to reverse then the deferred tax:
A) must be reduced by a valuation allowance. B) should be considered an asset or liability. C) should be considered an increase in equity.
Your answer: A was incorrect. The correct answer was C) should be considered an increase in equity.
If deferred tax liabilities are expected to reverse in the future, then they should be classified as liabilities. If, however, they are not expected to reverse in the future, then they should be classified as equity.
Thanks in advance!!