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
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