Exam 15: Accounting for Income Taxes

A company has received €40 000 for subscription revenue in advance and recorded a liability account 'revenue received in advance'.Revenue is taxed when it is received.The tax rate is 30%.What is the tax base for this item?

Discuss how the carrying amounts of deferred tax assets and liabilities may change even though there are no changes in the amount of the underlying temporary differences.

When considering the recognition of assets and liabilities for tax purposes,reference is made to the:

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

Snifful Industries has a depreciable asset that is estimated for accounting purposes to have a useful life of 7 years.For taxation purposes the useful life is 3 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 £210 000.What is the amount of the deferred tax liability account generated by this asset at the end of years 2,3 and 4?

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

Deferred tax assets are the amounts of income taxes recoverable in future periods that arise from assessable temporary differences.

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.

Discuss how the carrying amounts of deferred tax assets and liabilities may change even though there are no changes in the amount of the underlying temporary differences.

The tax figure calculated and recorded on the statement of comprehensive income is an accurate reflection of the entity's tax liability for the stated period.

Spring Day Ltd has a piece of equipment that it has revalued to its fair value of $90 000 this period.It originally cost $80 000 and the accumulated depreciation for both accounting and tax purposes is $20 000.There is no intention to sell the equipment in the near future.The tax rate is 30%.What is the journal entry to reflect the revaluation's tax implications?

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:

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

Temporary differences:

It is possible for a firm to legally make a large accounting profit but pay little or no tax based on its taxable income.

It is possible for a firm to legally make a large accounting profit but pay little or no tax based on its taxable income.

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