Question 1

To the extent that tax payable exists and has NOT yet been paid, a company will recognise:

Accepted Answer

A)   current tax asset;
B)   non-current asset;
C)   non-current liability;
D)   current tax liability. D

Question 2

If a taxation authority amends a company's assessment, the company should:

Accepted Answer

A)   Debit income tax expense if more tax needs to be paid;
B)   Credit income tax expense if less tax needs to be paid;
C)   Analyse the reason for the adjustment and consider whether both current and deferred tax are affected;
D)   Treat the adjustment as a prior period adjustment. C

Question 3

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

Accepted Answer

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

Question 4

Malarky Limited accrued €30 000 for employees' long service leave in the year ended 30 June 2016. This item will not be tax deductible until it is paid in approximately 10 years' time. If the company tax rate is 30%, Malarky Limited must record the following tax effect adjustment at the reporting date:

Accepted Answer

A)   debit Deferred tax asset €9000;
B)   debit Deferred tax liability €9000;
C)   credit Deferred tax asset €9000;
D)   credit Deferred tax liability €9000.

Question 5

ABC Limited has an asset with a carrying value of €50 000. The tax base of this asset is €40 000. The tax rate is 30%. As a result, which of the following deferred tax items does Roland Limited have?

Accepted Answer

A)   A deferred tax asset of €10 000;
B)   A deferred tax liability of €3000;
C)   A deferred tax liability of €10 000;
D)   A deferred tax asset of €3000.

Question 6

In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes:

Accepted Answer

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

Question 7

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

Accepted Answer

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

Question 8

The following information was extracted from the financial records of Pamakari Limited: Equipment purchased on 1 July 2015 for $100 000 (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 Pamakari Limited at 30 June 2016 is:

Accepted Answer

A)   debit Deferred tax asset $3000;
B)   credit Deferred tax asset $3000;
C)   debit Deferred tax liability $3000;
D)   credit Deferred tax liability $3000.

Question 9

Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Accepted Answer

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

Question 10

Carry-forward tax losses create:

Accepted Answer

A)   a deductible temporary difference and therefore a deferred tax asset in that the company will pay more tax on future taxable profits;
B)   a taxable temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits;
C)   a deductible temporary difference and therefore a deferred tax liability in that the company will pay more tax on future taxable profits;
D)   a deductible temporary difference and therefore a deferred tax asset in that the company will pay less tax on future taxable profits.

Question 11

Beta Limited has an accounting profit before tax of €200 000. All of the following items have been included in the accounting profit: depreciation of equipment €30 000 (tax deductible depreciation is €20 000); entertainment expenses €15 000 (non-deductible for tax purposes); Long service leave expense provided €6000 (no employee took long service leave during the year). The tax rate is 30%. The amount of current tax liability is:

Accepted Answer

A)   €81 300;
B)   €50 700;
C)   €69 300;
D)   €38 700.

Question 12

Use the information below to answer questions 
A company commenced business on 1 July 2014. On 30 June 2015, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:$\begin{array}{lllr}
\text { Assets } & &{\text { Liabilities }} \
\text { Cash } & £ 40,000 & \text { Trade payables } & £ 80,000 \
\text { Inventory } & 100,000 & \text { Long service leave } & 5,000\
\text { Plant } & 300,000 \
\text { Accumulated depreciation } & (30,000)
\end{array}$
Additional information:

1.	The plant was acquired on 1 July 2014. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.

2.	The tax rate is 30%.

Using the following worksheet, determine the deferred tax asset and deferred tax liability.
$\begin{array}{|c|c|c|c|c|c|c|}
\hline &\begin{array}{c}
\text { Carrying } \
\text { amount }
\end{array} & \begin{array}{c}
\text { Future } \
\text { taxable } \
\text { amount }
\end{array} & \begin{array}{c}
\text { Future } \
\text { deductibl } \
\text { e amount }
\end{array} & \begin{array}{c}
\text { Taxable } \
\text { base }
\end{array} & \begin{array}{c}
\text { Deductible } \
\text { temporary } \
\text { differences }
\end{array} & \begin{array}{c}
\text { temporary } \
\text { differences }
\end{array} \
\hline \text { Assets } & \
\hline \text { Cash } & \
\hline \text { Inventory } & \
\hline \text { Plant } & \
\hline & \
\hline \text { Liabilities } & \
\hline \text { Trade payables } & \
\hline \begin{array}{c}
\text { Long-service } \
\text { leave }
\end{array} & \
\hline & \
\hline & \
\hline \text { Deferred tax liability } & \
\hline \text { Deferred tax asset } & \
\hline
\end{array}$
-The deferred tax liability is:

Accepted Answer

A)   £1500;
B)   £4500;
C)   £15 000;
D)   £34 500.

Question 13

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

Accepted Answer

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 14

The following information relates to Godfrey Limited for the year ended 30 June 2016: Accounting profit before income tax (after all expenses have been included)$\quad$ $£ 300,000$ 
Fines and penalties (not tax deductible)$\quad$ 20,000
Depreciation of plant (accounting) $\quad$40,000
Depreciation of plant (tax) $\quad$100,000
Long-service leave expense (not a tax deduction until the leave is paid) $\quad$8,000 
Income tax rate $\quad$$30 \%$
On the basis of this information the current tax liability is:

Accepted Answer

A)   £74 400;
B)   £78 000;
C)   £80 400;
D)   £99 600.

Question 15

Tax losses can be viewed as providing:

Accepted Answer

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.

Question 16

According to IAS 12, current tax for current and prior periods shall, to the extent unpaid, be recognised as a:

Accepted Answer

A)   Note to the financial statements;
B)   Contingent liability;
C)   Liability;
D)   Expense.

Question 17

Balchin Limited had the following deferred tax balances at reporting date:
$\bullet$ Deferred tax assets €12 000
$\bullet$ Deferred tax liabilities €30 000
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:

Accepted Answer

A)   DR €6000;
B)   DR €4500;
C)   CR €6000;
D)   CR €4500.

Question 18

The tax effect method of accounting for a company's income tax is based on an assumption that:

Accepted Answer

A)   income tax expense is equal to income tax payable;
B)   an accounting balance sheet and a tax balance sheet are the same;
C)   a tax balance sheet is prepared according to accounting standards;
D)   income tax expense is not equal to current tax liability.

Question 19

Unless a company has a legal right of set-off, IAS 12 Income Taxes, requires disclosure of all of the following information for deferred tax in the statement of financial position: 
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

Accepted Answer

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

Question 20

Use the information below to answer questions 
A company commenced business on 1 July 2014. On 30 June 2015, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information:$\begin{array}{lllr}
\text { Assets } & &{\text { Liabilities }} \
\text { Cash } & £ 40,000 & \text { Trade payables } & £ 80,000 \
\text { Inventory } & 100,000 & \text { Long service leave } & 5,000\
\text { Plant } & 300,000 \
\text { Accumulated depreciation } & (30,000)
\end{array}$
Additional information:

1.	The plant was acquired on 1 July 2014. Depreciation for accounting purposes was 10% (straight-line method), while 15% (straight-line) was used for tax purposes.

2.	The tax rate is 30%.

Using the following worksheet, determine the deferred tax asset and deferred tax liability.
$\begin{array}{|c|c|c|c|c|c|c|}
\hline &\begin{array}{c}
\text { Carrying } \
\text { amount }
\end{array} & \begin{array}{c}
\text { Future } \
\text { taxable } \
\text { amount }
\end{array} & \begin{array}{c}
\text { Future } \
\text { deductibl } \
\text { e amount }
\end{array} & \begin{array}{c}
\text { Taxable } \
\text { base }
\end{array} & \begin{array}{c}
\text { Deductible } \
\text { temporary } \
\text { differences }
\end{array} & \begin{array}{c}
\text { temporary } \
\text { differences }
\end{array} \
\hline \text { Assets } & \
\hline \text { Cash } & \
\hline \text { Inventory } & \
\hline \text { Plant } & \
\hline & \
\hline \text { Liabilities } & \
\hline \text { Trade payables } & \
\hline \begin{array}{c}
\text { Long-service } \
\text { leave }
\end{array} & \
\hline & \
\hline & \
\hline \text { Deferred tax liability } & \
\hline \text { Deferred tax asset } & \
\hline
\end{array}$
-The deferred tax asset is:

Accepted Answer

A)   £1500;
B)   £4500;
C)   £5000;
D)   £25 500.

Exam 23: Revenue From Contracts With Customers

To the extent that tax payable exists and has NOT yet been paid, a company will recognise:

If a taxation authority amends a company's assessment, the company should:

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

ABC Limited has an asset with a carrying value of €50 000. The tax base of this asset is €40 000. The tax rate is 30%. As a result, which of the following deferred tax items does Roland Limited have?

In jurisdictions where the impairment of goodwill is not tax deductible, IAS 12 Income Taxes:

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

Under IAS 12 Incomes Taxes, deferred tax assets and liabilities are measured at the tax rates that:

Carry-forward tax losses create:

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

Tax losses can be viewed as providing:

According to IAS 12, current tax for current and prior periods shall, to the extent unpaid, be recognised as a:

The tax effect method of accounting for a company's income tax is based on an assumption that: