Question 1

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

A

Question 2

To the extent that tax payable exists and has NOT yet been paid a company will recognise:

Accepted Answer

If tax payable exists but has not yet been paid, it is considered a current liability and should be recognised as a current tax liability.

Question 3

In jurisdictions where the impairment of goodwill is not tax deductible, AASB 112 Income Taxes:

Accepted Answer

A

Question 4

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

The accounting treatment is based on accrual accounting and is subject to the requirements of accounting standards. The income tax treatment is based on the income tax legislation. The accounting treatment may differ from the income tax treatment due to differences in the timing or recognition of revenue and expenses. Depreciation charges may also affect the accounting treatment, but they are not the sole basis for determining it. Similarly, cash flows may be a factor, but they do not determine the accounting treatment.

Question 5

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 answer of The following information relates to Godfrey Limited...

Question 6

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 the reporting period.

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 described are known as temporary differences, which arise due to differences in timing between when items are recognized for accounting purposes and when they are recognized for tax purposes. These differences will ultimately reverse in the future, resulting in the eventual alignment of accounting and tax values. Permanent differences, on the other hand, are differences that will never reverse and are therefore not subject to deferred tax accounting. Tax losses and current income tax liability are not accurate descriptions of the situation described in the question.

Question 8

The tax effect method of accounting for a company's income tax is based on an assumption that:

Accepted Answer

The tax effect method assumes that income tax expense is not equal to current tax liability, as it takes into account the temporary differences between the timing and amount of accounting and tax recognition of assets and liabilities. This method involves calculating the deferred tax liability or asset and recognizing it on the balance sheet. Therefore, options A, B, and C are incorrect.

Question 9

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:
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.
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 answer of A company commenced business on 1 July...

Question 10

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 correct answer is A because the company has accrued an expense for long service leave that will not be tax deductible until it is paid in approximately 10 years' time. This means that the company will have to pay more tax in the future when the expense is actually paid. To account for this, the company must record a deferred tax asset of $9,000, which is the amount of tax that will be saved in the future when the expense is paid.

Question 11

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

Accepted Answer

A taxable temporary difference means that the tax base of an asset or liability is expected to be higher in the future than its carrying amount in the financial statements. This will result in a higher taxable income in the future when the asset is realized or the liability is settled, leading to a higher tax expense. Therefore, it gives rise to a deferred tax liability, as the company will need to pay more tax in the future due to this difference.

Question 12

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

The answer of Balchin Limited had the following deferred tax...

Question 13

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 $750 (26,250 x (35% - 30%)).

Question 14

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:
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.
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

The answer of A company commenced business on 1 July...

Question 15

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

Accepted Answer

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

Question 16

Current tax consequences of business operations give rise to:

Accepted Answer

Current tax consequences refer to the taxes owed by the business for the current year's operations. Therefore, it gives rise to a current liability for income tax payable. A deferred liability arises when the taxes owed are spread out over multiple years, and a non-current liability arises when taxes owed are not due within a year. A contingent liability refers to a potential future liability that is dependent on an uncertain event.

Question 17

Under AASB 112 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Accepted Answer

AASB 112 requires deferred tax assets and liabilities to be measured at the tax rates that are expected to apply when the asset is realised or the liability is settled. This means that the rate used must reflect any changes in tax legislation or rates that have been enacted or substantively enacted by the reporting date. The rates applied at the beginning or end of the reporting period may not accurately reflect the applicable rates in the future.

Question 18

Which of the following disclosures are optional under AASB 112?

Accepted Answer

The answer of Which of the following disclosures are optional...

Question 19

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 is $10,000, creating a temporary difference. The deferred tax liability is calculated as $10,000 * 30% = $3,000.

Question 20

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...

Quiz 12: Income Taxes