Deck 6: Accounting for Company Income Tax

Question 1

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

A)more tax in the future and gives rise to a deferred tax asset
B)less tax in the future and gives rise to a deferred tax asset
C)more tax in the future and gives rise to a deferred tax liability
D)less tax in the future and gives rise to a deferred tax liability.

Answer 1

C

Question 2

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:

A)a deductible temporary difference of $10 000
B)an taxable temporary difference of $10 000
C)a tax base of $10 000
D)a future deductible amount of $0.

Answer 2

A

Question 3

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:

A)temporary differences
B)permanent differences
C)tax losses
D)the current income tax liability.

Answer 3

A

Question 4

On 1 April 20X2,the company rate of income tax was changed from 35% to 30%.At the previous reporting date (30 June 20X1)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?

A)increase $750
B)decrease $750
C)increase $875
D)decrease $875.

Question 5

The deferred tax liability is:

A)$1 500
B)$4 500
C)$15 000
D)$34 500.

Question 6

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

A)cash flows
B)cash flows adjusted for depreciation charges
C)accrual accounting and is subject to the requirements of accounting standards
D)the income tax legislation.

Question 7

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

A)more tax in the future and gives rise to a deferred tax asset
B)less tax in the future and gives rise to a deferred tax asset
C)more tax in the future and gives rise to a deferred tax liability
D)less tax in the future and gives rise to a deferred tax liability.

Question 8

Explain how a tax loss may arise and how tax losses are treated under Australian tax legislation.

Question 9

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

A)applied at the beginning of the reporting period
B)at the end of the reporting period
C)at the rates that prevail at the reporting date
D)are expected to apply when the asset or liability is settled.

Question 10

Tax losses can be viewed as providing:

A)taxable temporary differences,and therefore a current tax liability
B)taxable temporary differences,and therefore a current tax refund
C)deductible temporary differences,and therefore a deferred tax asset
D)deductible temporary differences,and therefore deferred tax liabilities.

Question 11

The deferred tax asset is:

A)$1 500
B)$4 500
C)$5 000
D)$25 500.

Question 12

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

A)As each transaction arises or is incurred
B)As the cash flows from each transaction occur
C)At the end of each month
D)At balance date.

Question 13

Unless a company has a legal right of set-off,AASB 112 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.

A)I,II and IV only
B)I,II and III only
C)III and IV only
D)IV only.

Question 14

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:

A)$120
B)$220
C)$80
D)$20

Question 15

What is a 'tax base' and how is it calculated?

Question 16

Explain the difference between accounting profit and taxable profit.

Question 17

The following information was extracted from the financial records of Pamakari Limited: Equipment purchased on 1 July 20X2 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 20X3 is:

A)debit Deferred tax asset $10 000
B)credit Deferred tax asset $3 000
C)debit Deferred tax liability $10 000
D)credit Deferred tax liability $3 000.

Question 18

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

A)on the face of the statement of financial position
B)on the face of the statement of profit or loss and other comprehensive income
C)in the statement of cash flows
D)in the statement of changes in equity.

Question 19

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

A)does not permit the application of deferred tax accounting to goodwill
B)allows the recognition of a deferred tax item in relation to goodwill
C)requires that any deferred tax items in relation to goodwill be recognised directly in equity
D)requires that any deferred tax items for goodwill be capitalised in the carrying amount of goodwill.

Question 20

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:

A)DR $6 000
B)DR $4 500
C)CR $6 000
D)CR $4 500.

Question 21

Explain how deferred tax assets and liabilities are measured.

Question 22

Explain why taxable temporary differences relating to goodwill are excluded under AASB 112.