Question 1

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?

Accepted Answer

A) €0 
B) €40 000 
C) €12 000 
D) €36 000

Question 2

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.

Accepted Answer

The answer of Discuss how the carrying amounts of deferred...

Question 3

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

Accepted Answer

A) depreciation rate 
B) carrying amount 
C) tax base 
D) historical cost

Question 4

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

Accepted Answer

The answer of Discuss the assumptions made when recognising a...

Question 5

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?

Accepted Answer

A) End of year 2: £24 000; year 3: £36 000; year 4: £27 000 
B) End of year 2: £80 000; year 3: £120 000; year 4: £90 000 
C) End of year 2: £12 000; year 3: £24 000; year 4: £36 000 
D) End of year 2: £12 000; year 3: £12 000; year 4: £(9000)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

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.

Accepted Answer

The answer of Discuss how the carrying amounts of deferred...

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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?

Accepted Answer

A)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Income tax expense } & \$ 9000 & \
\hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 9000 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Asset revaluation reserve } & \$ 9000 & \
\hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 9000 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Deferred tax asset } & \$ 9000 & \
\hline \mathrm{Cr} & \text { Asset revaluation reserve } & & \$ 9000 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Income tax expense } & \$ 3000 & \
\hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 3000 \
\hline
\end{array}$

Question 12

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.

Question 13

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

Accepted Answer

The answer of Explain how a deferred tax liability arises...

Question 14

Temporary differences:

Accepted Answer

A) arise due to differences between income tax legislation and accounting rules, in a particular period, and are reversed in subsequent periods. 
B) can be both deductible temporary differences or taxable temporary differences. 
C) must be considered, and accounted for, by the creation of deferred tax asset and liabilities for all statement of financial position items (e.g.including asset revaluations), rather than just statement of comprehensive income items, which is a major change created by the new standard. 
D) arise due to changes in the income tax rate.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.

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.

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.

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: