1. 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.
Chapter – Chapter 18 #1
Difficulty: Easy
Section: 18.02 Tax base of assets and liabilities, further
consideration
2. Deferred
tax assets are the amounts of income taxes recoverable in future periods that
arise from assessable temporary differences.
Chapter – Chapter 18 #2
Difficulty: Easy
Section: 18.03 Deferred tax assets and deferred tax
liabilities
3. Deferred
tax assets may arise from amounts of income taxes recoverable in future periods
that arise from carry forward of unused tax losses.
Chapter – Chapter 18 #3
Difficulty: Easy
Section: 18.04 Unused tax losses
4. The
balance sheet approach compares the carrying value with the tax base of the
assets and liabilities.
Chapter – Chapter 18 #4
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
5. Non-deductible
expenses in the current or subsequent periods results in a deferred tax asset.
Chapter – Chapter 18 #5
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
6. The
tax-effect of the temporary difference that arises from revaluation of
non-current assets is recognised in profit and loss.
Chapter – Chapter 18 #6
Difficulty: Medium
Section: 18.05 Revaluation of non-current assets
7. It is
possible for a firm to legally make a large accounting profit but pay little or
no tax based on its taxable income.
Chapter – Chapter 18 #7
Difficulty: Easy
Section: Introduction to accounting for income taxes
8. Profit
for taxation purposes is determined in accordance with AASB 112.
Chapter – Chapter 18 #8
Difficulty: Easy
Section: Introduction to accounting for income taxes
9. The
difference between the carrying amount of an asset or liability in the balance
sheet and its tax base is a temporary difference.
Chapter – Chapter 18 #9
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
10. There are
two types of temporary differences between the carrying value of assets and
liabilities and the tax baseâassessable temporary differences and neutral
temporary differences.
Chapter – Chapter 18 #10
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
11. 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.
Chapter – Chapter 18 #11
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
12. The
balance sheet approach to accounting for taxation relies on comparing the
historical cost of an item with its appropriate tax base.
Chapter – Chapter 18 #12
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
13. 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.
Chapter – Chapter 18 #13
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
14. 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.
Chapter – Chapter 18 #14
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
15. According
to AASB 112, with one exception, the tax base of a liability is to be
determined in the following manner: Carrying amount â Future deductible amount
+ Future assessable amount.
Chapter – Chapter 18 #15
Difficulty: Easy
Section: 18.02 Tax base of assets and liabilities, further
consideration
16. AASB 112
defines the tax base as the amount that is attributed to an asset or liability
for tax purposes.
Chapter – Chapter 18 #16
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
17. 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.
Chapter – Chapter 18 #17
Difficulty: Easy
Section: 18.04 Unused tax losses
18. 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.
Chapter – Chapter 18 #18
Difficulty: Easy
Section: 18.05 Revaluation of non-current assets
19. 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.
Chapter – Chapter 18 #19
Difficulty: Easy
Section: 18.05 Revaluation of non-current assets
20. AASB 112
required an entity to offset current tax assets and current tax liabilities if
the entity intends to realise the asset and settle the liability
simultaneously.
Chapter – Chapter 18 #20
Difficulty: Medium
Section: 18.06 Offsetting deferred tax liabilities and
deferred tax assets
21. A change
in tax rates does not require any change in the carrying amount of deferred tax
assets and deferred tax liabilities.
Chapter – Chapter 18 #21
Difficulty: Easy
Section: 18.07 Change of tax rates
22. AASB 112
uses what term to describe the method for accounting for taxes that it
mandates?
A. net
balances method
B. financial
position method
C. asset and
liability method
D. balance
sheet method
Chapter – Chapter 18 #22
Difficulty: Easy
Section: Introduction to accounting for income taxes
23. The AASB
112 approach has been adopted because:
A. it
matches the revenues earned with tax payable on those revenues.
B. it is
conservative.
C. it is
considered consistent with the AASB Conceptual Framework.
D. it is
considered acceptable by the ATO.
Chapter – Chapter 18 #23
Difficulty: Easy
Section: Introduction to accounting for income taxes
24. The
generally accepted (a) accounting rule and (b) tax rule for development
expenditure are:
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.
Chapter – Chapter 18 #24
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
25. The amount
of tax assessed by the ATO based on the entity’s operations for the period will
be reflected in which account?
A. income
tax expense
B. deferred
income tax
C. deferred
tax liability
D. income
tax payable
Chapter – Chapter 18 #25
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
26. Some items
are treated as a deduction for tax purposes when they are paid but are
recognised as expenses when they are accrued for accounting purposes. Which of
the following items are of that type?
A. long-service
leave
B. goodwill
amortisation
C. depreciation
D. entertainment
Chapter – Chapter 18 #26
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
27. 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?
A. research
and development costs
B. warranty
costs
C. sick
leave payments
D. goodwill
amortisation
Chapter – Chapter 18 #27
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
28. The tax
base is defined in AASB 112 as:
A. the
amount of assessable income for the period.
B. the tax
rate applicable to income levels under $60 000.
C. the
amount that is attributed to an asset or liability for tax purposes.
D. the head
office of the Australian Taxation Office in Canberra.
Chapter – Chapter 18 #28
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
29. A taxable
temporary difference is one that will result in:
A. an
increase in income tax payable in future reporting periods when the carrying
amount of the asset or liability is recovered or settled.
B. a
decrease in income tax payable in future reporting periods when the carrying
amount of the asset or liability is recovered or settled.
C. an
increase in income tax recoverable 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 and an increase in
income tax recoverable in future reporting periods when the carrying amount of
the asset or liability is recovered or settled.
Chapter – Chapter 18 #29
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
30. A
deductible temporary difference is one that will result in:
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.
Chapter – Chapter 18 #30
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
31. Under the
approach of AASB 112 to accounting for income taxes, a taxable temporary
difference creates which account?
A. provision
for tax payable
B. deferred
tax asset
C. general
reserve
D. deferred
tax liability
Chapter – Chapter 18 #31
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
32. Under the
approach of AASB 112 to accounting for income taxes, a deductible temporary
difference creates which account?
A. deferred
tax revenue
B. deferred
tax liability
C. deferred
tax asset
D. provision
for tax payable
Chapter – Chapter 18 #32
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
33. Tissues
Ltd 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?
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
Chapter – Chapter 18 #33
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
34. 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?
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)
Chapter – Chapter 18 #34
Difficulty: Hard
Section: 18.01 The balance sheet approach to accounting for
taxation
35. Sinfonia
Ltd made credit sales for this period of $100 000. The allowance for doubtful
debts for these sales is $3000. For taxation purposes the amount provided for
doubtful debts is not tax-deductible and the taxation office has included the
$100 000 in taxable income. The tax rate is 30%. What is the deferral arising
from this situation?
A. none
B. deferred
tax liability of $900
C. deferred
tax asset of $900
D. deferred
tax liability of $3000
Chapter – Chapter 18 #35
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
36. A company
has a loan with a carrying value of $60 000. The payment of the loan is not
deductible for tax purposes. The tax rate is 30%. What is the tax base for this
item?
A. $0
B. $60 000
C. $18 000
D. $78 000
Chapter – Chapter 18 #36
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
37. 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?
A. $0
B. $40 000
C. $12 000
D. $36 000
Chapter – Chapter 18 #37
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
38. A deferred
tax asset arises if:
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
Chapter – Chapter 18 #38
Difficulty: Medium
Section: 18.03 Deferred tax assets and deferred tax
liabilities
Section: Summary
39. The
correct method for calculating the amount of a deferred tax liability or asset
may be expressed as a formula as follows:
A. (Carrying
amount of assets or liabilities â tax bases of assets or liabilities) Ã tax
rate
B. Carrying
amount of assets or liabilities â (tax bases of assets or liabilities à tax
rate)
C. Carrying
amount of assets or liabilities â tax bases of assets or liabilities à tax rate
D. Carrying
amount of assets or liabilities â tax bases of assets or liabilities
Chapter – Chapter 18 #39
Difficulty: Easy
Section: 18.03 Deferred tax assets and deferred tax
liabilities
40. Bulldog
Supplies Ltd has an item of equipment that has a carrying value of $80 000. For
taxation purposes the asset’s net value is $60 000 and deferred tax liabilities
of $3000 had previously been recorded. Bulldog also has accrued interest
revenue of $5000 that will not be taxed until it is received in cash. The tax
rate is 30%. What is the journal entry to record the tax effect?
A.
B.
C.
D.
Chapter – Chapter 18 #40
Difficulty: Hard
Section: 18.03 Deferred tax assets and deferred tax
liabilities
41. Raging
Dragons Ltd has a depreciable asset that is estimated for accounting purposes
to have a useful life of 15 years. For taxation purposes the useful life is 10
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 $150 000.
What adjustment will be required to the deferred tax liability account in years
10 and 11?
A. End of year
10 $1500; year 11 $1500
B. End of
year 10 $5000; year 11 $(10 000)
C. End of
year 10 $1500; year 11 $(3000)
D. End of
year 10 $15 000; year 11 $(3000)
Chapter – Chapter 18 #41
Difficulty: Hard
Section: 18.02 Tax base of assets and liabilities, further
consideration
42. 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?
A.
B.
C.
D.
Chapter – Chapter 18 #42
Difficulty: Medium
Section: 18.03 Deferred tax assets and deferred tax
liabilities
43. Mighty
Motors Ltd offers a warranty on all the spare parts it sells. This period the
accrued warranty is $5000. For tax purposes there is no deduction for the
warranty until payments are made. Mighty Motors also has equipment that has a
useful life for accounting purposes of 4 years and for tax purposes 3 years.
The equipment was purchased at the beginning of the current period, cost $9000
and has no residual value. The straight-line method of depreciation is used for
both accounting and tax purposes. The accounting profit before tax this period
is $80 000. The tax rate is 30%. What are the journal entries to record the tax
expense and tax payable?
A.
B.
C.
D.
Chapter – Chapter 18 #43
Difficulty: Hard
Section: 18.03 Deferred tax assets and deferred tax
liabilities
44. The
criterion for recognising a deferred tax asset is that:
A. it should
be fully recognised if it is probable that future taxable amounts within the
entity will be available against which the deductible temporary differences can
be utilised.
B. it should
be recognised if it is possible that future taxable amounts within the entity
will be available against which the deductible temporary differences can be
utilised.
C. it should
be recognised to the extent, and only to the extent, that it is possible that
future taxable amounts within the entity will be available against which the
deductible temporary differences can be utilised.
D. it should
be recognised to the extent, and only to the extent, that it is probable that
future taxable amounts within the entity will be available against which the
deductible temporary differences can be utilised.
Chapter – Chapter 18 #44
Difficulty: Easy
Section: 18.03 Deferred tax assets and deferred tax
liabilities
45. 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:
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.
Chapter – Chapter 18 #45
Difficulty: Easy
Section: 18.02 Tax base of assets and liabilities, further
consideration
46. Casper Ltd
incurred a loss of $500 000 for tax purposes in 2014. This was due to one-off
circumstances and it is expected that Casper will make profits again in 2015
and subsequent years. There are no temporary differences in either year. In
2015 Casper makes a profit of $700 000. The tax rate is 30%. What are the
journal entries for 2014 and 2015?
A.
B.
C.
D.
Chapter – Chapter 18 #46
Difficulty: Medium
Section: 18.04 Unused tax losses
47. 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?
A. research
and development costs
B. warranty
costs
C. sick
leave payments
D. entertainment
Chapter – Chapter 18 #47
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
48. The amount
of tax calculated based on the entity’s operations for the period will be
reflected in which account?
A. income
tax expense
B. deferred
income tax
C. deferred
tax liability
D. income
tax payable
Chapter – Chapter 18 #48
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
49. 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?
A.
B.
C.
D.
Chapter – Chapter 18 #49
Difficulty: Medium
Section: 18.05 Revaluation of non-current assets
50. 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?
A.
B.
C.
D.
Chapter – Chapter 18 #50
Difficulty: Hard
Section: 18.05 Revaluation of non-current assets
51. Recognising
deferred tax assets and deferred tax liabilities as per AASB 112 creates some
conflict with the definition of assets and liabilities in the AASB Conceptual
Framework. Key issues in this regard are:
A. It is
questionable whether or not the company controls the benefits from the deferred
tax asset, and there is not a present obligation to transfer the funds
represented in the deferred tax liability to the government.
B. The
company really has no claim against the government for the amount of the
deferred tax asset and it is not probable that the company will have to pay the
deferred tax liability.
C. Setting
off the deferred tax asset and deferred tax liability does not meet the
requirements of the AASB Conceptual Framework and there is a contingent element
involved in the recognition of the deferred tax asset.
D. The AASB
Conceptual Framework does not permit the recognition of the rights to future
revenues implicit in assets to trigger obligations to future expenses implicit
in liabilities and the extent to which a deferred tax liability is recognised
should not depend on management’s intention to sell a revalued asset.
Chapter – Chapter 18 #51
Difficulty: Medium
Section: 18.08 Evaluation of the assets and liabilities
created by AASB 112
52. The
balance sheet approach adopted in AASB 112:
A. will
continue to be used as the alternatives are too simplistic.
B. will only
be understood by the very sophisticated financial readers.
C. uses
existing statement of financial position data thus reducing record keeping
costs.
D. will only
be understood by the very sophisticated financial readers and uses existing
statement of financial position data thus reducing record keeping costs.
Chapter – Chapter 18 #52
Difficulty: Easy
Section: 18.08 Evaluation of the assets and liabilities
created by AASB 112
53. When the
carrying amount of an asset exceeds the tax base, there will be a deferred
tax , because the
taxation payments have effectively been .
A. asset;
made in advance of recognising the expense
B. asset;
deferred to future periods
C. liability;
made in advance of recognising the expense
D. liability;
deferred to future periods
Chapter – Chapter 18 #53
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
54. Temporary
differences:
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.
Chapter – Chapter 18 #54
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
55. 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%.
A.
B.
C.
D.
Chapter – Chapter 18 #55
Difficulty: Hard
Section: 18.02 Tax base of assets and liabilities, further
consideration
56. As at 30
June 2012, the Provision for Long-service leave balance was $125 000. During
2011/12 $54 000 was charged to the provision account, and leave to the value of
$34 000 was taken by staff. The balance on 30 June 2013 was $135 000, following
the charging of long-service leave expense of the same amount as in 2011/12 ,
i.e. $54 000. 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%.
A.
B.
C.
D.
Chapter – Chapter 18 #56
Difficulty: Hard
Section: 18.03 Deferred tax assets and deferred tax
liabilities
57. 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. 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 Australian Taxation Office 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.
Chapter – Chapter 18 #57
Difficulty: Medium
Section: 18.04 Unused tax losses
58. The
carrying amount of a deferred tax asset is reviewed:
A. annually
B. at each
reporting date
C. when
assets are revalued
D. None of
the given answers are correct.
Chapter – Chapter 18 #58
Difficulty: Easy
Section: 18.04 Unused tax losses
59. Which of
the following statements is not correct in relation to tax rate changes?
A. An
increase in tax rates will create an expense where an entity has deferred tax
liabilities.
B. Across
time it is likely that governments will change tax rates.
C. A
decrease in tax rates will create an income where an entity has deferred tax
assets.
D. Changes
in tax rates will have implications for the value attributed to pre-existing
deferred tax assets.
Chapter – Chapter 18 #59
Difficulty: Hard
Section: 18.07 Change of tax rates
60. The
carrying amount of deferred tax assets and deferred tax liabilities can change:
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.
Chapter – Chapter 18 #60
Difficulty: Medium
Section: 18.07 Change of tax rates
61. Bogart Ltd
has the following tax balances as at 30 June 2012:
The balances were
calculated when the tax rate was 30%. On 30 September 2012, the government
announced a change to the company tax rate to 40%, effective immediately. What
is the journal entry to adjust the carry-forward balances of the deferred tax
asset and deferred tax liability?
A.
B.
C.
D.
Chapter – Chapter 18 #61
Difficulty: Medium
Section: 18.07 Change of tax rates
62. 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?
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
Chapter – Chapter 18 #62
Difficulty: Medium
Section: 18.07 Change of tax rates
63. Which of
the following statements is correct with respect to AASB 112 Income Taxes when
the government increase tax rates?
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.
Chapter – Chapter 18 #63
Difficulty: Medium
Section: 18.07 Change of tax rates
64. Which of
the following statements is correct with respect to AASB 112 Income Taxes when
a non-current asset is revalued?
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.
Chapter – Chapter 18 #64
Difficulty: Medium
Section: 18.05 Revaluation of non-current assets
65. What is
the accounting treatment for goodwill that is consistent with AASB 112 Income
Taxes?
A. treated
as a deductible expense in the year of recognition
B. treated
as a non-deductible expense in the year of recognition and subsequent periods
C. the
difference between the carrying amount and the tax base results to a taxable
temporary difference
D. the
difference between the carrying amount and the tax base results to a deductible
temporary difference
Chapter – Chapter 18 #65
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
66. On 1
January 2012, William Bay Ltd purchased a machine for $100 000. The entity
adopts a straight-line depreciation method and uses 10% and 15% as depreciation
rate and tax rate respectively. The salvage value is zero and the tax rate is
30%.
At 31 December 2012, which of the following statements is
correct with respect to the transaction that is in accordance with AASB 112
Income Taxes only?
A. There is
a deductible temporary difference of $5000.
B. There is
a deductible temporary difference of $1500.
C. There is a
taxable temporary difference of $5000.
D. There is
a taxable temporary difference of $1500.
Chapter – Chapter 18 #66
Difficulty: Medium
Section: 18.02 Tax base of assets and liabilities, further
consideration
67. On 1
January 2012, William Bay Ltd purchased a machine for $100 000. The entity
adopts a straight-line depreciation method and uses 10% and 15% as depreciation
rate and tax rate respectively. The salvage value is zero and the tax rate is
30%.
At 31 December 2012,
which of the journal entries is correct with respect to the transaction that is
in accordance with AASB 112 Income Taxes only?
A.
B.
C.
D.
Chapter – Chapter 18 #67
Difficulty: Medium
Section: 18.03 Deferred tax assets and deferred tax
liabilities
68. Some items
are treated as a deduction for tax purposes when they are paid but are
recognised as expenses when they are accrued for accounting purposes. Which of
the following items are of that type?
A. warranty
costs
B. goodwill
amortisation
C. depreciation
D. entertainment
Chapter – Chapter 18 #68
Difficulty: Medium
Section: 18.01 The balance sheet approach to accounting for
taxation
69. The
reversal of deductible temporary differences results in deductions in
determining the:
A. income
tax expense
B. future
taxable profits
C. carrying
amounts
D. income
tax payable
Chapter – Chapter 18 #69
Difficulty: Medium
Section: 18.03 Deferred tax assets and deferred tax
liabilities
70. When
considering the recognition of assets and liabilities for tax purposes,
reference is made to the:
A. depreciation
rate
B. carrying
amount
C. tax base
D. historical
cost
Chapter – Chapter 18 #70
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
71. The
accounting profit multiplied by the tax rate is known as:
A. income
tax payable
B. income
tax expense
C. taxable
amount
D. assessable
amount
Chapter – Chapter 18 #71
Difficulty: Easy
Section: 18.01 The balance sheet approach to accounting for
taxation
72. 72. How is
taxable profit derived? How can it be calculated by starting with, and
adjusting, accounting profit?
73. How do deferred
tax assets and deferred tax liabilities arise? How do you calculate their
balances at a point in time?
74. Discuss
the criteria for recognising deferred tax assets when there are unused tax
losses?
75. Discuss
the assumptions made when recognising a deferred tax asset or a deferred tax
liability.
76. Explain,
with examples, how changes in tax rates affect pre-existing deferred tax asset
and deferred tax liability balances.
77. Evaluate
deferred tax assets and deferred tax liabilities in terms of the AASB
Conceptual Framework and the notion that they fail to meet the criteria
outlined in the Framework.
78. 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.
79. Explain
how a deferred tax liability arises from depreciation of machinery and
equipment.
80. Discuss
the accounting treatment for the temporary difference that arises from
revaluation of non-current assets.
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