Question
What is the effect of a valuation allowance on a deferred tax asset?
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Answer
It reduces the DTA to expected realizable value.
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Question
Why does ASC 740 use the asset/liability method instead of focusing only on current tax payable?
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Answer
It measures deferred taxes from temporary book-tax basis differences.
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Question
How do permanent differences affect deferred taxes?
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Answer
They never create deferred taxes.
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Question
Why do temporary differences create deferred tax assets or liabilities?
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Answer
They reverse in future periods, changing future taxable amounts.
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