Question 1

As at 30 June 2012,net accounts receivables was $57 000,and the allowance for doubtful debts was $3000.On 30 June 2013,the respective balances were $64 000 and $4000.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%.

Accepted Answer

A) 
$$\begin{array}{l}
30 \text { June } 2013\
\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax asset } & \$ 1000 & \
\hline \mathrm { Cr } & \text { Income taxation expense } & & \$ 1000 \
\hline
\end{array}
\end{array}$$ 
B) 
$$\begin{array}{l}
30 \text { June } 2013\
\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Income taxation expense } & \$ 1000 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 1000 \
\hline
\end{array}
\end{array}$$ 
C) 
$$\begin{array}{l}
30 \text { June } 2013\
\begin{array} { | c | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax asset } & \$ 300 & \
\hline \mathrm { Cr } & \text { Income taxation expense } & & \$ 300 \
\hline
\end{array}
\end{array}$$ 
D) 
$$\begin{array}{l}
30 \text { June } 2013\
\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Income taxation expense } & \$ 300 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 300 \
\hline
\end{array}
\end{array}$$

Question 2

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.

Question 3

Profit for taxation purposes is determined in accordance with AASB 112.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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

Question 6

Digitor Industries Ltd accrues long-service leave as employees work towards their entitlement.For tax purposes,long-service leave is not deductible until it is paid.During the current period Digitor has accrued $50 000 in long-service leave expense and paid none.The tax rate is 30%.What is the journal entry to record the deferral?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Income tax expense } & \$ 15000 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 15000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax asset } & \$ 15000 & \
\hline \mathrm { Cr } & \text { Income tax expense } & & \$ 15000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax liability } & \$ 50000 & \
\hline \mathrm { Cr } & \text { Income tax expense } & & \$ 50000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax liability } & \$ 15000 & \
\hline \mathrm { Cr } & \text { Income tax expense } & & \$ 15000 \
\hline
\end{array}$$

Question 7

Which of the following statements is correct with respect to AASB 112 Income Taxes when a non-current asset is revalued?

Accepted Answer

A)  On revaluation date, the revaluation reserve is increased by the product of the temporary difference and the tax rate. 
B)  On revaluation date, the revaluation reserve is decreased by the product of the temporary difference and the tax rate. 
C)  On revaluation date, a deferred tax liability is created equal to the amount of the temporary difference. 
D)  On revaluation date, a deferred tax asset is created equal to the amount of the temporary difference.

Question 8

Shopping Malls Ltd has some land it purchased several years ago for $300 000.It has revalued the land this period to $480 000 and management intends to sell it in the near future.When the land was acquired the index for capital gains tax was 110 and at reporting date it is 132.The tax rate is 30%.What is the entry to record the tax implications of the revaluation?

Accepted Answer

A) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & \$ 69000 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 69000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Income tax expense } & \$ 54000 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 54000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Deferred tax asset } & \$ 69000 & \
\hline \mathrm { Cr } & \text { Asset revaluation reserve } & & \$ 69000 \
\hline
\end{array}$$ 
D) 
$$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Asset revaluation reserve } & \$ 36000 & \
\hline \mathrm { Cr } & \text { Deferred tax liability } & & \$ 36000 \
\hline
\end{array}$$

Question 9

Under AASB 112,where the carrying amount of an asset is less than the amount that is economically recoverable,the deferred tax asset should be adjusted.

Accepted Answer

A) True 
 B)False

Question 10

Explain,with examples,how changes in tax rates affect pre-existing deferred tax asset and deferred tax liability balances.

Accepted Answer

The answer of Explain,with examples,how changes in tax rates affect...

Question 11

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 12

A deductible temporary difference is one that will result in:

Accepted Answer

A)  a decrease in income tax recoverable in future reporting periods when the carrying amount of the asset or liability is recovered or settled. 
B)  an increase in income tax payable in future reporting periods when the carrying amount of the asset or liability is recovered or settled. 
C)  a decrease in income tax recoverable in future reporting periods when the carrying amount of the asset or liability is recovered or settled, and an increase in income tax payable in future reporting periods when the carrying amount of the asset or liability is recovered or settled. 
D)  a decrease in income tax payable in future reporting periods when the carrying amount of the asset or liability is recovered or settled.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is correct with respect to AASB 112 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.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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.

Question 20

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?

Accepted Answer

A)  research and development costs 
B)  warranty costs 
C)  sick leave payments 
D)  goodwill amortisation

Exam 18: Accounting for Income Taxes

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

Profit for taxation purposes is determined in accordance with AASB 112.

Temporary differences:

A deferred tax asset arises if:

Which of the following statements is correct with respect to AASB 112 Income Taxes when a non-current asset is revalued?

Under AASB 112,where the carrying amount of an asset is less than the amount that is economically recoverable,the deferred tax asset should be adjusted.

Explain,with examples,how changes in tax rates affect pre-existing deferred tax asset and deferred tax liability balances.

A deductible temporary difference is one that will result in:

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

Which of the following statements is correct with respect to AASB 112 Income Taxes when the government increase tax rates?

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

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.

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 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?

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

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?