Question 1

Tax losses can be viewed as providing:

Accepted Answer

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. 
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. C

Question 2

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

Accepted Answer

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. 
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. B

Question 3

The following information was extracted from the financial records of Pamakari Limited: Equipment purchased on 1 July 2014 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 2015 is:

Accepted Answer

A)  debit Deferred tax asset $3000 
B)  credit Deferred tax asset $3000 
C)  debit Deferred tax liability $3000 
D)  credit Deferred tax liability $3000. 
A)  debit Deferred tax asset $3000 
B)  credit Deferred tax asset $3000 
C)  debit Deferred tax liability $3000 
D)  credit Deferred tax liability $3000. D

Question 4

Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Accepted Answer

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 is realised or the liability is settled. 
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 is realised or the liability is settled.

Question 5

Beta Limited has an accounting profit before tax of $200 000. All of the following items have been included in the accounting profit: depreciation of equipment $30 000 (tax deductible depreciation is $20 000); entertainment expenses $15 000 (non-deductible for tax purposes); Long service leave expense provided $6000 (no employee took long service leave during the year). The tax rate is 30%. The amount of current tax liability is:

Accepted Answer

A)  $81 300 
B)  $50 700 
C)  $69 300 
D)  $38 700. 
A)  $81 300 
B)  $50 700 
C)  $69 300 
D)  $38 700.

Question 6

Carry-forward tax losses create:

Accepted Answer

A)  a deductible temporary difference and therefore a deferred tax asset in that the company will pay more tax on future taxable profits 
B)  a taxable temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits 
C)  a deductible temporary difference and therefore a deferred tax liability in that the company will pay more tax on future taxable profits 
D)  a deductible temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits. 
A)  a deductible temporary difference and therefore a deferred tax asset in that the company will pay more tax on future taxable profits 
B)  a taxable temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits 
C)  a deductible temporary difference and therefore a deferred tax liability in that the company will pay more tax on future taxable profits 
D)  a deductible temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits.

Question 7

On 1 April 2013, the company rate of income tax was changed from 35% to 30%. At the previous reporting date (30 June 2012) 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?

Accepted Answer

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

Question 8

Which of the following disclosures are optional under IAS 12?

Accepted Answer

A)  the major components of income tax expense 
B)  the aggregate current tax or deferred tax that arises relating to items that are charged or credited directly to equity 
C)  the amount of deductible temporary differences and unused tax losses, for which no deferred tax asset is recognised in the statement of financial position 
D)  a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis of calculating the applicable tax rate. 
A)  the major components of income tax expense 
B)  the aggregate current tax or deferred tax that arises relating to items that are charged or credited directly to equity 
C)  the amount of deductible temporary differences and unused tax losses, for which no deferred tax asset is recognised in the statement of financial position 
D)  a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis of calculating the applicable tax rate.

Question 9

According to IAS 12, current tax for current and prior periods shall, to the extent unpaid, be recognised as a:

Accepted Answer

A)  Note to the financial statements 
B)  Contingent liability 
C)  Liability 
D)  Expense 
A)  Note to the financial statements 
B)  Contingent liability 
C)  Liability 
D)  Expense

Question 10

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:

Accepted Answer

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

Question 11

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

Accepted Answer

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. 
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 12

Use the information below to answer questions 12 and 13.
A company commenced business on 1 July 2012. On 30 June 2013, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:
   
Additional information:
1. The plant was acquired on 1 July 2012. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.
2. The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
  
-The deferred tax asset is:

Accepted Answer

A)  $1500 
B)  $4500 
C)  $5000 
D)  $25 500. 
A)  $1500 
B)  $4500 
C)  $5000 
D)  $25 500.

Question 13

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

Accepted Answer

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. 
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 14

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

Accepted Answer

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. 
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 15

If a taxation authority amends a company's assessment, the company should:

Accepted Answer

A)  Debit income tax expense if more tax needs to be paid 
B)  Credit income tax expense if less tax needs to be paid 
C)  Analyse the reason for the adjustment and consider whether both current and deferred tax are affected 
D)  Treat the adjustment as a prior period adjustment. 
A)  Debit income tax expense if more tax needs to be paid 
B)  Credit income tax expense if less tax needs to be paid 
C)  Analyse the reason for the adjustment and consider whether both current and deferred tax are affected 
D)  Treat the adjustment as a prior period adjustment.

Question 16

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

Accepted Answer

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. 
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 17

Use the information below to answer questions 12 and 13.
A company commenced business on 1 July 2012. On 30 June 2013, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:
   
Additional information:
1. The plant was acquired on 1 July 2012. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.
2. The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
  
-The deferred tax liability is:

Accepted Answer

A)  $1500 
B)  $4500 
C)  $15 000 
D)  $34 500. 
A)  $1500 
B)  $4500 
C)  $15 000 
D)  $34 500.

Question 18

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:

Accepted Answer

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. 
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.

Question 19

In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes:

Accepted Answer

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. 
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

During the year ended 30 June 2013 Barry Ltd, pays quarterly tax instalments as follows:
$4000 on 28 October 2012
$11 000 on 28 February 2013
$12 000 on 28 April 2013
On 30 June 2013, Barry Ltd determines its total current tax liability for the year to be $33 000.
The final tax instalment for the year will be:

Accepted Answer

A)  a refund of $2000. 
B)  a payment of $6000 
C)  a payment of $12 000 
D)  a payment of $33 000. 
A)  a refund of $2000. 
B)  a payment of $6000 
C)  a payment of $12 000 
D)  a payment of $33 000.

Exam 6: Income Taxes

Tax losses can be viewed as providing:

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

Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Carry-forward tax losses create:

On 1 April 2013, the company rate of income tax was changed from 35% to 30%. At the previous reporting date (30 June 2012) 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?

Which of the following disclosures are optional under IAS 12?

According to IAS 12, current tax for current and prior periods shall, to the extent unpaid, be recognised as a:

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:

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

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

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

If a taxation authority amends a company's assessment, the company should:

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

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:

In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes:

The Conceptual Framework of the Iasb

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Financial Instruments

Share-Based Payments

Inventories

Employee Benefits

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Translation of the Financial Statements of Foreign Entities

Associates and Joint Ventures

Joint Arrangements

Filters