Exam 15: Accounting for Income Taxes

When the carrying amount of an asset exceeds its tax base,the amount that will be allowed as a deduction for tax purposes will exceed the amount of assessable economic benefits.

A change in tax rates does not require any change in the carrying amount of deferred tax assets and deferred tax liabilities.

There are two types of temporary differences between the carrying value of assets and liabilities and the tax base-assessable temporary differences and neutral temporary differences.

When a non-current asset is revalued,the recognition of future tax associated with an asset that has a fair value in excess of cost,acts to reduce the amount of the revaluation reserve.

Under IAS 12,where the carrying amount of an asset is less than the amount that is economically recoverable,the deferred tax asset should be adjusted.

Bulldog Supplies Ltd has an item of equipment that has a carrying value of $80 000.For taxation purposes the asset's net value is $60 000 and deferred tax liabilities of $3000 had previously been recorded.Bulldog also has accrued interest revenue of $5000 that will not be taxed until it is received in cash.The tax rate is 30%.What is the journal entry to record the tax effect?

IAS 12 defines the tax base as the amount that is attributed to an asset or liability for tax purposes.

The balance sheet approach to accounting for taxation relies on comparing the historical cost of an item with its appropriate tax base.

Some items are treated as a deduction for tax purposes when they are paid but are recognised as expenses when they are accrued for accounting purposes.Which of the following items are of that type?

The tax-effect of the temporary difference that arises from revaluation of non-current assets is recognised in profit and loss.

Mighty Motors Ltd offers a warranty on all the spare parts it sells.This period the accrued warranty is $5000.For tax purposes there is no deduction for the warranty until payments are made.Mighty Motors also has equipment that has a useful life for accounting purposes of 4 years and for tax purposes 3 years.The equipment was purchased at the beginning of the current period,cost $9000 and has no residual value.The straight-line method of depreciation is used for both accounting and tax purposes.The accounting profit before tax this period is $80 000.The tax rate is 30%.What are the journal entries to record the tax expense and tax payable?

The difference between the carrying amount of an asset or liability in the balance sheet and its tax base is a temporary difference.

The carrying amount of a deferred tax asset is reviewed:

Under the approach of IAS 12 to accounting for income taxes,a taxable temporary difference creates which account?

As at 30 June 2012,the Provision for Long-service leave balance was $125 000.During 2011/12 $54 000 was charged to the provision account,and leave to the value of $34 000 was taken by staff.The balance on 30 June 2013 was $135 000,following the charging of long-service leave expense of the same amount as in 2011/12 ,i.e.$54 000.Assuming there were no other temporary differences,what is the journal entry to adjust for the changes in these balances as at 30 June 2013? The corporate tax rate is 30%.

Deferred tax assets arise as a result of tax losses.In the UK losses incurred in previous years can always be carried forward to offset taxable income derived in future years.

Some items are treated as a deduction for tax purposes when they are paid but are recognised as expenses when they are accrued for accounting purposes.Which of the following items are of that type?

Discuss the conditions that must be met to allow the set-off of current assets and current tax liabilities.

The amount of tax assessed by the ATO based on the entity's operations for the period will be reflected in which account?

Some items are typically not allowable tax deductions but are recognised as an expense for accounting purposes.Which of the following items are of that type?