Question 1

When the carrying amount of an asset exceeds the tax base,there will be a deferred tax ...... (a).....; because the taxation payments have effectively been ............(b):

Accepted Answer

When the carrying amount of an asset exceeds the tax base, it creates a taxable temporary difference that will result in a deferred tax liability. This is because the entity has already enjoyed the tax benefits of this asset in advance but will only recognize the expense in the future when the carrying amount is depreciated. Therefore, the tax payments have been deferred to future periods. Choice D is the correct answer as it depicts a liability that is deferred to future periods.

Question 2

The carrying amount of deferred tax assets and deferred tax liabilities can change:

Accepted Answer

The carrying amount of deferred tax assets and deferred tax liabilities can change both with a change in the amount of the related temporary differences and even if there is no change in the amount of the related temporary differences. This is because changes in tax rates or changes in the expected timing of reversal of temporary differences can also affect the carrying amount of deferred tax assets and liabilities. A re-assessment of recoverability of deferred tax liabilities is only one factor that may contribute to a change in carrying amounts. Therefore, option E is incorrect as it implies that all answers are correct.

Question 3

Recognising deferred tax assets and deferred tax liabilities as per AASB 112 creates some conflict with the definition of assets and liabilities in the AASB Framework.Key issues in this regard are:

Accepted Answer

Deferred tax assets and liabilities may not meet the strict definitions of assets and liabilities in the AASB Framework because it is debatable whether the company controls the benefits from the deferred tax asset, and there is no present obligation to transfer funds for the deferred tax liability.

Question 4

Which of the following statements is correct with respect to AASB 112 "Income Taxes" when a non-current asset is revalued?

Accepted Answer

The answer of Which of the following statements is correct...

Question 5

What is the accounting treatment for goodwill that is consistent with AASB 112 "Income Taxes"?

Accepted Answer

The answer of What is the accounting treatment for goodwill...

Question 6

The transfer of tax losses to other entities within a group:

Accepted Answer

AASB 112 does not address the transfer of tax losses to other entities within a group. However, under the new tax consolidation regime in Australia, such transfers are only permitted within a tax consolidated group.

Question 7

Which of the following statements is correct with respect to AASB 112 "Income Taxes" when the government increase tax rates?

Accepted Answer

The answer of Which of the following statements is correct...

Question 8

Lesser Ltd is wholly owned by Moore Ltd.In the current year Lesser Ltd has made a tax loss of $200,000 and Moore Ltd has made a profit of $300,000.It is expected that Lesser Ltd will make sufficient profits in the future to utilise the benefits of the tax loss,so Lesser has recorded a deferral for the loss.Moore pays Lesser $10,000 consideration for the transfer of the tax loss.Neither Moore nor Lesser have elected to be part of a tax consolidated group.The taxation rate is 30 per cent.What are the appropriate entries to record the transfer (only)?

Accepted Answer

The answer of Lesser Ltd is wholly owned by Moore...

Question 9

On 1 January 2012,William Bay Ltd purchased a machine for $100,000.The entity adopts a straight-line depreciation method and uses 10% and 15% as depreciation rate and tax rate,respectively.The salvage value is zero and the tax rate is 30%. At 31 December 2012,which of the following statements is correct with respect to this transaction only that is in accordance with AASB 112 "Income Taxes"?

Accepted Answer

The taxable temporary difference arises because the accounting depreciation ($10,000) is different from the tax depreciation ($15,000), resulting in a $5,000 difference.

Question 10

The balance sheet approach adopted in AASB 112:

Accepted Answer

The answer of The balance sheet approach adopted in AASB...

Question 11

If a tax rate changes from 30 per cent to 25 per cent results in an adjustment to the Deferred Tax Liability account of $50,000,what is (a)the amount of the temporary differences; and (b)the type of temporary differences?

Accepted Answer

The change in tax rate from 30% to 25% results in a $50,000 adjustment to the Deferred Tax Liability, indicating that the temporary differences are taxable and amount to $1,000,000 (since $1,000,000 * 5% = $50,000).

Question 12

Which of the following statements is not correct in relation to tax rate changes?

Accepted Answer

The answer of Which of the following statements is not...

Question 13

Criteria used by an entity to assess the probability that taxable profit will be available against which unused tax losses can be utilised include:

Accepted Answer

The criteria used to assess the probability that taxable profit will be available against which unused tax losses can be utilised include whether the unused tax losses result from identifiable causes which are unlikely to recur and whether it is probable that the entity will have taxable profits before the unused tax losses expire. Option A considers only one criteria and Option B considers only the other criteria. Option C is not a relevant criteria in this context. Therefore, the best choice is E which considers both relevant criteria.

Question 14

On 1 January 2012,William Bay Ltd purchased a machine for $100,000.The entity adopts a straight-line depreciation method and uses 10% and 15% as depreciation rate and tax rate,respectively.The salvage value is zero and the tax rate is 30%. At 31 December 2012,which of the journal entries is correct with respect to this transaction only that is in accordance with AASB 112 "Income Taxes"?

Accepted Answer

The taxable temporary difference is $5,000, which is the difference between the accounting depreciation ($10,000) and the tax depreciation ($15,000).

Question 15

To be a member of a "tax consolidated group":

Accepted Answer

The answer of To be a member of a "tax...

Question 16

Permanent differences:

Accepted Answer

Permanent differences do not reverse in subsequent periods and do not give rise to deferred tax assets or liabilities. They are differences between taxable income and accounting income that are never reconciled.

Quiz 19: Accounting for Income Taxes

When the carrying amount of an asset exceeds the tax base,there will be a deferred tax ...... (a) .....; because the taxation payments have effectively been ............(b) :