Deck 5: Accounting for Company Income Tax

Question 1

Which of the following is not an example of a deductible temporary difference?

A)accounts receivable with a provision for doubtful debts
B)interest receivable
C)provision for warranties
D)provision for long- service- leave

Answer 1

B

Question 2

Under the balance sheet method of accounting for income taxes,the future tax consequences of transactions and events give rise to:

A)deferred tax expenses and deferred tax revenues
B)deferred tax expenses and deferred tax assets
C)deferred tax assets and deferred tax revenues
D)deferred tax assets and deferred tax liabilities

Answer 2

D

Question 3

A loss is reported for tax purposes when:

A)allowable deductions are greater than assessable income
B)expenses are greater than revenues
C)allowable deductions are less than assessable income
D)none of the above

Answer 3

A

Question 4

AASB 112 Income Taxes applies to an entity that is:

A)a reporting entity
B)not a reporting entity
C)is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act 2001
D)both A and C

Question 5

Explain the concept of tax losses and the required accounting treatment according to AASB 112.

Question 6

Assuming that a company's accounting profit before tax is $150 000,its taxable income is $45 000 and a tax rate of 30%,the current tax liability for the company would be:

A)$58 500
B)$13 500
C)$31 500
D)$45 000

Question 7

A deferred tax asset will result when:

A)the carrying amount of an asset is greater than the asset's tax base
B)the carrying amount of a liability is greater than the liability's tax base
C)the carrying amount of an asset is less than the asset's tax base
D)both B and C

Question 8

Which of the following best describes the accounting treatment for interest expense?

A)recorded as a liability if received in advance
B)recorded as an expense as it accrues
C)a deduction is allowed when paid
D)recorded as an asset and expensed when used

Question 9

The income tax payable by a company is based on its taxable income and this is calculated in accordance with the:

A)Trade Practices Act
B)Corporations Act
C)Income Tax Assessment Act
D)none of the above

Question 10

For which of the following is a tax deduction not allowed:

A)entertainment costs
B)goodwill
C)fines and penalties
D)all of the above

Question 11

An example of an excluded taxable temporary difference is:

A)accrued interest
B)goodwill
C)provision for warranties
D)prepaid insurance

Question 12

Examples of deductible temporary differences include:

A)rent receivable
B)prepaid rent
C)prepaid insurance
D)none of the above

Question 13

Identify and explain three examples of taxable temporary differences.

Question 14

The tax base for a liability is calculated as :

A)Carrying amount minus Future taxable amount minus Future deductible amount
B)Carrying amount minus Any further deductible amount for tax
C)Carrying amount minus Future taxable amount plus Future deductible amount
D)Carrying amount plus Any further deductible amount for tax

Question 15

Parker Ltd had the following opening balances for the current year beginning 1 July 2010: Deferred tax asset (D TA) $~~~~~~~~~~~~\$ 24000$
Deferred taxliability (DTL) $~~~~~~~~~~\$ 15000$ If the company tax rate decreased from 30% to 25%,the adjusting journal entry would include:

A)Dr DTA 4 000
B)Cr DTL 2 500
C)Cr DTL 4 000
D)Cr DTA 4 000

Question 16

Under AASB 112,the amount that is attributable to an asset or liability for tax purposes is also known as the:

A)tax base
B)book value
C)carrying amount
D)taxable amount

Question 17

If the temporary difference is expected to lead to the payment of more tax in the future,it is described as a/an:

A)permanent difference
B)excluded temporary difference
C)deductible temporary difference
D)taxable temporary difference

Question 18

Which of the following statements regarding the tax- payable method is incorrect?

A)the income tax expense for the period is the same amount as the income tax payable for the same period
B)a balance day adjustment is recorded for income tax based on an estimate of taxation liability at the end of the financial year
C)the income tax expense for the period is different to the income tax payable for the same period
D)it is based on the proposition that the amount that has to be paid to the ATO is an appropriation of profits by governments

Question 19

Deductible temporary differences lead to the recognition of:

A)deferred tax expenses
B)deferred tax revenues
C)deferred tax assets
D)deferred tax liabilities

Question 20

Which of the following best describes accounting profit and taxable income?

A)the rules for calculating taxable income are always stricter than the rules for calculating accounting profit
B)the rules for calculating accounting profit are the same as the rules for calculating taxable income
C)the rules for calculating accounting profit are different from the rules for calculating taxable income
D)the rules for calculating accounting profit are always stricter than the rules for calculating taxable income

Question 21

Identify the steps to apply AASB 112.

Question 22

Discuss the adjustments required when there is a change in the company tax rate.

Question 23

Identify and explain three examples of deductible temporary differences.

Question 24

Explain the tax- payable method of paying income tax.

Question 25

Explain the concept of the tax base of an asset and how it is calculated.

Question 26

Explain the AASB 112 recognition requirements for deferred tax assets resulting from tax losses.

Question 27

Discuss the difference between taxable temporary differences and deductible temporary differences.