Nala Inc. reported deferred tax assets and deferred tax liabilities at the end of year 3  and at the end of year 4. For the year ended year 4 Nala should report deferred income tax expense or benefit equal to the
A. Sum of the net changes in deferred tax assets and deferred tax liabilities.
B. Amount of the income tax liability plus the sum of the net changes in deferred tax assets and deferred tax liabilities.
C. Decrease in the deferred tax assets.
D. Increase in the deferred tax liabilities.
Answer:A
A is corrent. Deferred income tax expense or benefit is the net change during the year in an enterprise’s deferred tax liabilities or assets.
B is incorrect because the amount of income tax liability plus the sum of the net changes in deferred tax assets and deferred tax liabilities is the total amount of income tax expense or benefit for the year. The question asks only for the deferred portion.
C is incorrect. The deferred income tax expense or benefit must consider the net effect of changes (both increases and decreases) in both deferred tax assets and deferred tax liabilities. The decrease in deferred tax assets alone will not equal the deferred income tax expense.
D is incorrect. The deferred income tax expense or benefit must consider the net effect of changes (both increases and decreases) in both deferred tax assets and deferred tax liabilities. The increase in deferred tax liabilities alone will not equal the deferred income tax expense.