Deck 17: Accounting for Company Income Tax

Question 1

Tax losses can be viewed as providing:

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.

Answer 1

C

Question 2

The recognition of __________ provides more complete or relevant information for economic decision making than __________.

A) current tax and deferred tax; deferred tax alone
B) current tax and deferred tax; current tax alone
C) deferred tax alone; current tax and deferred tax combined
D) current tax alone; current tax and deferred tax combined

Answer 2

B

Question 3

Unless a company has a legal right of set-off, AASB 112 Income Taxes, requires disclosure of which of the following information for deferred tax statement of financial position items? I. The amount of deferred tax assets recognised.
II) The amount of the deferred tax liabilities recognised.
III) The net amount of the deferred tax assets and liabilities recognised.
IV) The amount of the deferred tax asset relating to tax losses.

A) I, II and IV only
B) I, II and III only
C) III and IV only
D) IV only

Answer 3

A

Question 4

The following information relates to Hoover Limited for the year ended 30 June 2015. Accounting profit before income tax (after all expenses have been included) $280 000
Fines and penalties (not tax deductible) 22 000
Depreciation of plant (accounting) 50 000
Depreciation of plant (tax) 110 000
Long-service leave expense (not a tax deduction until the leave is paid) 10 000
Income tax rate 30%
No employee has been paid long-service leave in the current year. On the basis of this information the current tax liability is:

A) $69 000.
B) $75 600.
C) $72 600.
D) $92 400.

Question 5

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

A) less tax in the future and gives rise to a deferred tax asset.
B) more tax in the future and gives rise to a deferred tax asset.
C) less tax in the future and gives rise to a deferred tax liability.
D) more tax in the future and gives rise to a deferred tax liability.

Question 6

During the year ended 30 June 2015 Harry Ltd, pays quarterly PAYG tax instalments as follows: $6000 on 28 July 2014
$2000 on 28 October 2014
$8000 on 28 February 2015
$10 000 on 28 April 2015.
On 30 June 2015, Harry Ltd determines its total current tax liability for the year to be $28 000.
The final tax instalment for the year will be a:

A) refund of $2000.
B) payment of $2000.
C) payment of $8000.
D) payment of $28 000.

Question 7

Jackson Limited had the following deferred tax balances at reporting date:
-deferred tax assets $10 000
-deferred tax liabilities $26 000.
Effective from the first day of the next financial period, the company rate of income tax was reduced from 40% to 30%. The adjustment to income tax expense to recognise the impact of the tax rate change is:

A) Cr $4000.
B) Cr $5333.
C) Dr $4000.
D) Dr $5333.

Question 8

Under AASB 112 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

A) are expected to apply when the asset is realised or the liability is settled.
B) applied at the beginning of the reporting period.
C) applied at the end of the reporting period.
D) prevail at the reporting date.

Question 9

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

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 10

Silver Bullet Limited has a product warranty liability amounting to $12 000. The product warranty costs are not tax deductible until paid out to customers. The company tax rate is 30%. The company has a:

A) tax base of $12 000.
B) future deductible amount of $0.
C) taxable temporary difference of $12 000.
D) deductible temporary difference of $12 000.

Question 11

On 1 April 2015, the company rate of income tax changed from 35% to 30%. At the previous reporting date (30 June 2014) Monty Limited had the following tax balances:
-deferred tax assets $20 250
-deferred tax liabilities $15 000.
What is the impact of the tax rate change on income tax expense?

A) Increase $750
B) Decrease $750
C) Increase $875
D) Decrease $875

Question 12

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

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 13

The entries for income tax for the period are comprised of three components. Which of the following is NOT included in the components?

A) Recognition of the current tax liability.
B) Recognition of the movement in deferred tax liability included in the profit or loss for the period.
C) Recognition of the temporary difference on the purchase of goodwill.
D) Recognition of the movement in deferred tax asset included in the profit or loss for the period.

Question 14

The following information was extracted from the financial records of Panda Limited: equipment purchased on 1 July 2014 for $140 000 (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 Panda Limited at 30 June 2015 is which of the following?

A) Dr Deferred tax asset $14 000
B) Cr Deferred tax asset $4200
C) Dr Deferred tax liability $14 000
D) Cr Deferred tax liability $4200

Question 15

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

A) cash flows.
B) the income tax legislation.
C) cash flows adjusted for depreciation charges.
D) accrual accounting and is subject to the requirements of accounting standards.

Question 16

Sydney Limited accrued $20 000 for employees' long service leave in the year ended 30 June 2015. This item will not be tax deductible until it is paid in approximately 10 years' time. If the company tax rate is 30%, Sydney Limited must record which of the following tax effects as a balance date adjustment?

A) Dr Deferred tax asset $6000
B) Cr Deferred tax asset $6000
C) Dr Deferred tax liability $6000
D) Cr Deferred tax liability $6000

Question 17

In jurisdictions where the impairment of goodwill is not tax deductible, AASB 112 Income Taxes:

A) requires that any deferred tax items for goodwill be capitalised in the carrying amount of goodwill.
B) requires that any deferred tax items in relation to goodwill be recognised directly in equity.
C) does not permit the application of deferred tax accounting to goodwill.
D) allows the recognition of a deferred tax item in relation to goodwill.

Question 18

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

A) less tax in the future and gives rise to a deferred tax asset.
B) more tax in the future and gives rise to a deferred tax asset.
C) less tax in the future and gives rise to a deferred tax liability.
D) more tax in the future and gives rise to a deferred tax liability.

Question 19

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:

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

Question 20

CTV Limited has an asset which cost $400 and against which depreciation of $200 has accumulated. The accumulated depreciation for tax purposes is $280 and the company tax rate is 30%. The tax base of this asset is:

A) $36.
B) $320.
C) $120.
D) $80.