FR - Current Income Taxes

Question 1

Explain what current taxes payable is

Answer 1

It is tax liability for the current year based on Income tax act
Dr. Current income tax expense
Cr. INcome taxes payable
- Accounting principles differ from the tax rule;
- THe result in a difference in net income before tax for F/S purposes and in net income

Question 2

What is the permanent difference?

Answer 2

• It is the difference between accounting income and taxable income that does not reverse over time
  -Item of revenue, expenses, gain or loss

Question 3

Provide four examples of permanent difference

Answer 3

1. Dividends received from taxable Canadian corporation
2. 50% of capital gain or loss (allowable capital losses)
3. 50% of meals and entertainment
4. Potitical contribution

Question 4

Explain what the temporary difference is

Answer 4

Are difference between the carrying amount of an asset or liability in the SFP and its tax base
- Classified as either deductible temporary difference or taxable temporary difference giving rise to a deferred income tax asset or liability

Question 5

Provide 4 examples of temporary difference

Answer 5

• Depreciation expense vs capital cost allowance (CCA)
• Warranty expense
• Bad debt expense
• Development cost
  -Pension expenses

Question 6

What are most companies required to do based on their estimated taxes payable

Answer 6

• Companies are required to do installment payments of interim payments that company make for tax
  Dr. Income tax installment xx
  Cr. Cash. xx

Question 7

Explain how loss carryback is used

Answer 7

• Tax loss carryback - Non-capital loss applied to the taxable income of the preceding year up to three year prior, refund will be recovered
• Higher-income tax is in the year which loss is carried back, more taxes will be recovered for a given amount of tax loss

Dr. Income tax receivable
Cr. Current income tax expense

Question 8

Explain what loss carries forward

Answer 8

• Will depend on whether the company is likely to have future taxable income against which to apply the non-capital loss carry-forward
• Deferred tax assets may be recognized