Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

A) whether the unused tax losses result from identifiable causes that are unlikely to recur. 
B) whether it is probable that the entity will have taxable profits before the unused tax losses expire. 
C) whether permission has been received from the Taxation Authorities to carry forward tax losses. 
D) whether the entity has unused tax losses relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses can be utilised before they expire. 
A) whether the unused tax losses result from identifiable causes that are unlikely to recur. 
B) whether it is probable that the entity will have taxable profits before the unused tax losses expire. 
C) whether permission has been received from the Taxation Authorities to carry forward tax losses. 
D) whether the entity has unused tax losses relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses can be utilised before they expire.

Question 3

A deferred tax asset arises if:

Accepted Answer

A) the carrying amount of an asset is greater than its tax base 
B) the carrying amount of a liability is greater than its tax base 
C) the carrying amount of a liability is less than its tax base 
D) the carrying amount of an asset is greater than its tax base and the carrying amount of a liability is less than its tax base 
A) the carrying amount of an asset is greater than its tax base 
B) the carrying amount of a liability is greater than its tax base 
C) the carrying amount of a liability is less than its tax base 
D) the carrying amount of an asset is greater than its tax base and the carrying amount of a liability is less than its tax base

Question 4

Non-deductible expenses in the current or subsequent periods results in a deferred tax asset.

Accepted Answer

A) True 
 B)False

Question 5

Explain how a deferred tax liability arises from depreciation of machinery and equipment.

Accepted Answer

From a taxation perspective specific dep

Question 6

Which of the following statements is correct with respect to IAS 12 Income Taxes when the government increase tax rates?

Accepted Answer

A) The entity applies a prospective application to deferred tax assets and deferred tax liabilities initially recognised subsequent to the announcement of the tax change. 
B) Expense is recognised if the entity has deferred tax liabilities only. 
C) Income is recognised if the entity has deferred tax liabilities only. 
D) Expense is recognised if the entity has deferred tax assets only. 
A) The entity applies a prospective application to deferred tax assets and deferred tax liabilities initially recognised subsequent to the announcement of the tax change. 
B) Expense is recognised if the entity has deferred tax liabilities only. 
C) Income is recognised if the entity has deferred tax liabilities only. 
D) Expense is recognised if the entity has deferred tax assets only.

Question 7

Deferred tax assets may arise from amounts of income taxes recoverable in future periods that arise from carry forward of unused tax losses.

Accepted Answer

A) True 
 B)False

Question 8

The generally accepted (a)accounting rule and (b)tax rule for development expenditure are:

Accepted Answer

A) (a) capitalise and amortise; (b) a tax deduction when paid for. 
B) (b) expense when paid for; (b) a tax deduction when paid for. 
C) (c) capitalise and amortise; (b) a tax deduction when amortised. 
D) (d) expense when paid for; (b) a tax deduction when amortised. 
A) (a) capitalise and amortise; (b) a tax deduction when paid for. 
B) (b) expense when paid for; (b) a tax deduction when paid for. 
C) (c) capitalise and amortise; (b) a tax deduction when amortised. 
D) (d) expense when paid for; (b) a tax deduction when amortised.

Question 9

If a tax rate change from 30% to 25% 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

A) (a) £ 1 000 000; (b) taxable temporary differences 
B) (a) £ 1 000 000; (b) deductible temporary differences 
C) (a) £ 50 000; (b) taxable temporary differences 
D) (a) £ 50 000; (b) deductible temporary differences 
A) (a) £ 1 000 000; (b) taxable temporary differences 
B) (a) £ 1 000 000; (b) deductible temporary differences 
C) (a) £ 50 000; (b) taxable temporary differences 
D) (a) £ 50 000; (b) deductible temporary differences

Question 10

Discuss the assumptions made when recognising a deferred tax asset or a deferred tax liability.

Accepted Answer

Information about carrying values and ta

Question 11

The tax base of revenue received in advance is equal to zero where the revenue received is taxed in the reporting period that the revenue is received.

Accepted Answer

A) True 
 B)False

Question 12

Tissues Plc has a depreciable asset that is estimated for accounting purposes to have a useful life of 8 years.For taxation purposes the useful life is 5 years.The asset was purchased at the beginning of year 1,there is no residual value,and the straight-line method of depreciation is used for both tax and accounting purposes.The tax rate is 30% and the cost of the asset is £100 000.What is the amount of the deferred tax liability account generated by this asset at the end of years 1,2 and 3?

Accepted Answer

A) End of year 1 £0; year 2 £2250; year 3: £4500 
B) End of year 1 £7500; year 2 £15,000; year 3: £22 500 
C) End of year 1 £6750; year 2 £4500; year 3: £2250 
D) End of year 1 £2250; year 2 £4500; year 3: £6750 
A) End of year 1 £0; year 2 £2250; year 3: £4500 
B) End of year 1 £7500; year 2 £15,000; year 3: £22 500 
C) End of year 1 £6750; year 2 £4500; year 3: £2250 
D) End of year 1 £2250; year 2 £4500; year 3: £6750

Question 13

72.How is taxable profit derived?
 How can it be calculated by starting with,and adjusting,accounting profit?

Accepted Answer

Taxable profit is the profit derived by

Question 14

According to IAS 12,with one exception,the tax base of a liability is to be determined in the following manner:
 Carrying amount - Future deductible amount + Future assessable amount.

Accepted Answer

A) True 
 B)False

Question 15

How is taxable profit derived?
 How can it be calculated by starting with,and adjusting,accounting profit?

Accepted Answer

Taxable profit is the profit derived by

Question 16

When a non-current asset is revalued the tax base is not affected as depreciation for tax purposes will continue to be based on original cost.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) with a change in the amount of the related temporary differences. 
B) even if there is no change in the amount of the related temporary differences. 
C) with a re-assessment of the recoverability of deferred tax liabilities. 
D) 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. 
A) with a change in the amount of the related temporary differences. 
B) even if there is no change in the amount of the related temporary differences. 
C) with a re-assessment of the recoverability of deferred tax liabilities. 
D) 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.

Question 18

The tax base of a liability must be calculated as the liability's carrying amount as at the reporting date,less any future deductible amounts and plus any future assessable amounts that are expected to arise from settling the liability's carrying amount as at the reporting date.The exception to this rule is that:

Accepted Answer

A) In the case of revenue received in advance, the tax base must be calculated as the liability's carrying amount less any amount of the revenue received in advance that has been included in taxable amounts in the current or a previous reporting period. 
B) In the case of carry forward tax losses, the tax base must be adjusted for any consideration paid by a company within the group that is receiving the transferred tax loss. 
C) In the case of a downward revaluation of a non-current asset, the tax base must be calculated as the decrease in the asset plus any amount expected to be received in the future inflated by the index for capital gains tax. 
D) In the case of a warranty liability, the tax base must be calculated as the liability's carrying amount less any amounts paid out this period that have not been included in taxable amounts in the current period. 
A) In the case of revenue received in advance, the tax base must be calculated as the liability's carrying amount less any amount of the revenue received in advance that has been included in taxable amounts in the current or a previous reporting period. 
B) In the case of carry forward tax losses, the tax base must be adjusted for any consideration paid by a company within the group that is receiving the transferred tax loss. 
C) In the case of a downward revaluation of a non-current asset, the tax base must be calculated as the decrease in the asset plus any amount expected to be received in the future inflated by the index for capital gains tax. 
D) In the case of a warranty liability, the tax base must be calculated as the liability's carrying amount less any amounts paid out this period that have not been included in taxable amounts in the current period.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) income tax expense 
B) deferred income tax 
C) deferred tax liability 
D) income tax payable 
A) income tax expense 
B) deferred income tax 
C) deferred tax liability 
D) income tax payable

Exam 15: Accounting for Income Taxes

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

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

A deferred tax asset arises if:

Non-deductible expenses in the current or subsequent periods results in a deferred tax asset.

Explain how a deferred tax liability arises from depreciation of machinery and equipment.

Which of the following statements is correct with respect to IAS 12 Income Taxes when the government increase tax rates?

Deferred tax assets may arise from amounts of income taxes recoverable in future periods that arise from carry forward of unused tax losses.

The generally accepted (a)accounting rule and (b)tax rule for development expenditure are:

If a tax rate change from 30% to 25% 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?

Discuss the assumptions made when recognising a deferred tax asset or a deferred tax liability.

The tax base of revenue received in advance is equal to zero where the revenue received is taxed in the reporting period that the revenue is received.

72.How is taxable profit derived? How can it be calculated by starting with,and adjusting,accounting profit?

According to IAS 12,with one exception,the tax base of a liability is to be determined in the following manner: Carrying amount - Future deductible amount + Future assessable amount.

How is taxable profit derived? How can it be calculated by starting with,and adjusting,accounting profit?

When a non-current asset is revalued the tax base is not affected as depreciation for tax purposes will continue to be based on original cost.

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

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

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

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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