Question 1

Generally, when considering the differences between the accounting treatment and the income tax treatment of a particular item the accounting treatment is based on:

Accepted Answer

Accounting treatment follows accrual accounting and is bound by accounting standards that govern recognition, measurement, presentation, and disclosure of financial information. Income tax treatment, on the other hand, follows the tax legislation and the rules set out in the taxation laws. The cash flows involved may impact both accounting and income tax treatments, but the primary consideration for accounting treatment is the adherence to accounting standards.

Question 2

Balchin Limited had the following deferred tax balances at reporting date:
Deferred tax assets $12 000
Deferred tax liabilities $30 000
Effective from the first day of the next financial period, the company rate of income tax was reduced from 40% to 30%. The adjustment to income tax expense to recognise the impact of the tax rate change is:

Accepted Answer

D

Question 3

Use the information below to answer questions 12 and 13.
A company commenced business on 1 July 2012. On 30 June 2013, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:
  
Additional information:
1. The plant was acquired on 1 July 2012. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.
2. The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
 
-The deferred tax asset is:

Accepted Answer

The deferred tax asset is calculated as the difference between the tax base and the carrying amount of the asset or liability multiplied by the applicable tax rate. In this case, the deferred tax asset is $1,500 (($45,000 - $40,000) x 0.15)).

Question 4

On 1 April 2013, the company rate of income tax was changed from 35% to 30%. At the previous reporting date (30 June 2012) Montgomery Limited had the following tax balances:
Deferred tax assets $26 250
Deferred tax liabilities $21 000
What is the impact of the tax rate change on income tax expense?

Accepted Answer

The deferred tax asset will increase by $5,250 (26,250 x (35% - 30%)). The deferred tax liability will decrease by $3,750 (21,000 x (35% - 30%)). The net impact on income tax expense will be an increase of $1,500 ($5,250 - $3,750).

Question 5

A taxable temporary difference is expected to lead to the payment of:

Accepted Answer

A taxable temporary difference occurs when the carrying amount of an asset or liability is different for tax purposes than it is for accounting purposes, and this difference will result in taxable amounts in the future when the asset is realized or the liability is settled. This means that the company will have to pay more tax in the future, resulting in the creation of a deferred tax liability.

Question 6

Tax losses can be viewed as providing:

Accepted Answer

Tax losses, meaning losses incurred by a company for tax purposes, can be carried forward to offset future taxable income. This creates a deductible temporary difference between the tax basis and the carrying value of the asset generating the loss. As a result, tax losses provide a deferred tax asset, as the company expects to reduce future taxable income and therefore pay less in taxes in the future.

Question 7

Differences between the carrying amounts of an entity's net assets determined under accounting standards and accrual accounting, and the tax bases of those net assets determined under the Income Tax Assessment Act, are described as:

Accepted Answer

The differences between the carrying amounts of an entity's net assets under accounting standards and the tax bases of those net assets under the Income Tax Assessment Act are referred to as temporary differences. These differences are temporary because they will eventually be resolved and result in either a taxable or deductible amount in the future. Permanent differences, on the other hand, are differences that will never be resolved, such as non-deductible expenses for tax purposes. Tax losses are a separate concept and refer to losses that can be carried forward to reduce future taxable income. The current income tax liability reflects the tax payable for the current period based on the taxable income determined under tax laws.

Question 8

CTT Limited has an asset which cost $300 and against which depreciation of $100 has accumulated. The accumulated depreciation for tax purposes is $180 and the company tax rate is 30%. The tax base of this asset is:

Accepted Answer

The answer of CTT Limited has an asset which cost...

Question 9

In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes:

Accepted Answer

The answer of In jurisdictions where the impairment of goodwill...

Question 10

The following information relates to Godfrey Limited for the year ended 30 June 2014.
Accounting profit before income tax (after all expenses have been included) $300 000
Fines and penalties (not tax deductible) 20 000
Depreciation of plant (accounting) 40 000
Depreciation of plant (tax) 100 000
Long-service leave expense (not a tax deduction until the leave is paid) 8 000
Income tax rate 30%
On the basis of this information the current tax liability is:

Accepted Answer

The taxable income is calculated by adjusting the accounting profit for non-deductible expenses and differences in depreciation. Taxable income = $300,000 + $20,000 (fines) - $60,000 (difference in depreciation) = $260,000. The current tax liability is 30% of $260,000, which is $78,000.

Question 11

The tax expense related to profit or loss of the period is required to be presented:

Accepted Answer

The tax expense related to profit or loss of the period is required to be presented on the face of the statement of profit or loss and other comprehensive income, as it directly relates to the determination of the net profit or loss for the period. It is not presented on the face of the statement of financial position, in the statement of cash flows, or in the statement of changes in equity.

Question 12

Malarky Limited accrued $30 000 for employees' long service leave in the year ended 30 June 2013. This item will not be tax deductible until it is paid in approximately 10 years' time. If the company tax rate is 30% Malarky Limited must record the following tax effect as a balance date adjustment:

Accepted Answer

The accrued long service leave creates a deductible temporary difference, leading to a deferred tax asset. The tax effect is 30% of $30,000, which is $9,000.

Question 13

D'Silva Limited has a product warranty liability amounting to $10 000. The product warranty costs are not tax deductible until paid out to customers. The company tax rate is 30%. The company has:

Accepted Answer

The answer of D'Silva Limited has a product warranty liability...

Question 14

Deferred tax accounting adjustments are recorded at what point in time?

Accepted Answer

Deferred tax accounting adjustments are recorded at balance date, which is the end of each reporting period. This is when the financial statements are prepared and the company takes into account any temporary differences between accounting treatment and tax treatment, which can result in deferred tax assets or liabilities.

Question 15

Unless a company has a legal right of set-off, IAS 12 Income Taxes, requires disclosure of all of the following information for deferred tax statement of financial position items:
I The amount of deferred tax assets recognised.
II The amount of the deferred tax liabilities recognised.
III The net amount of the deferred tax assets and liabilities recognised.
IV The amount of the deferred tax asset relating to tax losses.

Accepted Answer

IAS 12 requires disclosure of the amount of deferred tax assets and liabilities recognized, as well as the amount of deferred tax assets related to tax losses. The net amount is not required unless there is a legal right of set-off.

Question 16

The following information was extracted from the financial records of Pamakari Limited: Equipment purchased on 1 July 2014 for $100 000 (accounting depreciation 10% straight line tax depreciation 20% straight line). If the company tax rate is 30%, the deferred tax item that will be recorded by Pamakari Limited at 30 June 2015 is:

Accepted Answer

The accounting depreciation is $10,000 (10% of $100,000), and the tax depreciation is $20,000 (20% of $100,000). The difference of $10,000 creates a temporary difference, leading to a deferred tax liability of $3,000 (30% of $10,000).

Question 17

Use the information below to answer questions 12 and 13.
A company commenced business on 1 July 2012. On 30 June 2013, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:
  
Additional information:
1. The plant was acquired on 1 July 2012. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.
2. The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
 
-The deferred tax liability is:

Accepted Answer

To calculate the deferred tax liability, we need to consider the difference in depreciation for accounting and tax purposes.

The difference in depreciation = ($100,000 x 15%) - ($100,000 x 10%) = $5,000

The deferred tax liability = $5,000 x 30% = $1,500

Therefore, the correct answer is B) $4,500.

The information given in the worksheet is incorrect. The deferred tax asset and liability are calculated based on the temporary differences between accounting and tax purposes. In this case, the temporary difference is related to the difference in depreciation.

The deferred tax liability calculation should be:

Depreciation temporary difference = ($100,000 x 15%) - ($100,000 x 10%) = $5,000

Deferred tax liability = $5,000 x tax rate of 30% = $1,500

Therefore, the correct answer is B) $4,500, which is the sum of the deferred tax liability and the tax payable.

Question 18

Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Accepted Answer

Deferred tax assets and liabilities are measured based on the tax rates that are expected to apply when the asset is realized or the liability is settled, which is typically in the future. Therefore, the answer is D.

Question 19

During the year ended 30 June 2013 Barry Ltd, pays quarterly tax instalments as follows:
$4000 on 28 October 2012
$11 000 on 28 February 2013
$12 000 on 28 April 2013
On 30 June 2013, Barry Ltd determines its total current tax liability for the year to be $33 000.
The final tax instalment for the year will be:

Accepted Answer

The total tax paid in quarterly instalments is $27,000 [($4,000 + $11,000 + $12,000)], and the total current tax liability for the year is $33,000. Therefore, the final tax instalment will be a payment of $6,000 ($33,000 - $27,000).

Question 20

A deductible temporary difference is expected to lead to the payment of:

Accepted Answer

The answer of A deductible temporary difference is expected to...

Quiz 6: Income Taxes