Accounting Issues

Question 1

Average economic life (years)

Answer 1

Average economic life = Acquisition Value/Depreciation

Question 2

Average Age (Yr)

Answer 2

Average Age
=Accumulated Depreciation/Acquisition Value x Avg Economic life

=Accumulated Depreciated / Depreciation

Question 3

Depletion

Answer 3

Allocation of the cost of natural resources

Question 4

Methods of Depreciation

Answer 4

Straight Line
Accelerated
Per Unit

Question 5

When is acceleration depreciation used

Answer 5

Common for taxation

Question 6

Cons of unit of production depreciation

Answer 6

Lower depreciation during low production periods may overstate profit, if the lower production reflects a decline in the asset’s economic value.

Question 7

Depreciable Amount

Answer 7

Depreciable amount = Acquisition cost minus the Residual (salvage) value.

Question 8

Residual/Salvage Value

Answer 8

The residual (salvage) value is the estimated net realizable value 
of the asset at the end of its useful life.

Question 9

Impairment Charge

Answer 9

a decline in the ability of the asset to generate future economic benefits to the company. The impairment may signal a need for investment in improved technology

Question 10

Deferred Tax Liabilities

Answer 10

Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Taxable temporary differences are calculated both for assets and liabilities.

Question 11

Current Tax Liability

Answer 11

OB
+Current Tax
-Paid Tax
= CB

Question 12

IS for tax

Answer 12

EBIT

• Current tax
• deferred Tax

Question 13

Current tax

Answer 13

Income tax for a period based on taxable income

Question 14

Tax expense/income

Answer 14

Sum of current tax and deferred tax for the period

Question 15

How are subsidiaries taxed?

Answer 15

Taxes are not shown on cashflow statement and liabilities and assets are done on the individual level but can be grouped

Question 16

Capital gain

Answer 16

sale amount - book value

Question 17

Goodwill impairment on taxes

Answer 17

impairments to goodwill are not tax-deductible because they are unrealized losses

Question 18

Income tax temporary differences

Answer 18

1. The carrying amount of an asset or a liability in the balance sheet prepared according to financial accounting regulations and
2. Its tax base (the amount attributed to an asset or a liability for tax purposes)
   aka financial vs tax

Question 19

Deferred Tax Asset Formula

Answer 19

The carrying amount of an asset on the balance statement (financial accounting) < The tax base for same asset = deductible temp difference

Question 20

Deferred tax assets

Answer 20

-Amounts of income taxes recoverable in future periods
in respect of deductible temporary differences.
-Recognised when a company has recoverable income
taxes in future periods due to loss carryforwards (Statutory tax rate * Loss carryforward