Hey all, I came across a question in Schweser's qbank which I don't follow:
Which of the following situations will most likely require a company to record a valuation allowance on its balance sheet?
A) A firm is unlikely to have future taxable income that would enable it to take advantage of deferred tax assets.
To report depreciation, a firm uses the double-declining balance method for tax purposes and the straight-line method for financial reporting purposes.
C) A firm has differences between taxable and pretax income that are never expected to reverse.
Correct answer: A
Any help with explanation would be much appreciated. Did I mention I hate FRA?! 