Question

Question: Access the glossary (“Master Glossary”) to answer the following.

(a) What is a deferred tax asset?

(b) What is taxable income?

(c) What is the definition of valuation allowance?

(d) What is a deferred tax liability?

Short answer

Answer:

(a) Deferred tax assets: It means the deduction in the company's future tax liability.

(b) Taxable income: The income accounted for calculating the assessee's tax liability.

(c) Valuation allowance: The amount which reduces the deferred tax assets.

(d) Deferred tax liability: The company needs to pay more tax in the future.

Step-by-step solution

Meaning of Taxes

Taxes means the mandatory contribution to the government. It is a financial charge imposed by the government on the income of the people. Tax can be classified as direct tax and indirect tax.

Deferred tax assets

Deferred tax assets are the asset created when the taxable income ismore than the accounting income. It is a future deduction in the tax liability of the company.

Taxable Income

Taxable income means the portion of the income charged to the income tax, and taxable income is according to the guidelines of the internal revenue code.

Valuation allowance

The valuation allowance is the allowance the companies use to offset the amount of deferred tax asset balance of the company. It is based on the tax asset, which will not likely realize the tax benefits.

Deferred tax Liability

The Deferred tax liability is created when the current year's taxable income is less than the company's accounting income. It is adjusted in the future by increasing the future tax amount.