Income Taxes

Question 1

Temporary differences

Answer 1

Difference between ca an tb.

Get taxable temporary differences(liability) and deductible temporary differences(asset).

Question 2

Tax base of an asset

Answer 2

Amount which will be deductible for tax purposes against economic benefits flowing from it.
If the economic benefits are not taxable, it’s tb equals its carrying value.

Question 3

Tax base of a liability

Answer 3

Carrying amount less amounts that will be deductible for tax purposes in future.
Revenue received in advance tb would be its carrying amount less amount not taxed in the future.

Question 4

Exempt temporary differences

Answer 4

Goodwill which is not deductible for tax.
Temporary differences on initial recognition which is not a business combination or at time of transaction did not affect taxable income or accounting profit.

Question 5

Permanent tax differences

Answer 5

Must be shown for disclosure purposes as have to reconcile effective tax charge to statutory tax charge.
Differences in tax and accounting which will not recur and reverse.

Question 6

Deferred tax and assessed loss

Answer 6

Deferred tax asset (net deductible temporary difference) can only be raised to extent of probable future taxable income. Unrecognized temporary difference require disclosure.
Tax losses are temporary differences because have null accounting value and bc to value of loss.
In analysis:
Defered tax- balance at start and equals to other plus alp. Movements are the defered tax for the year.
Other- movement equals the temporary differences for the year at tax.
Alp- balance equals total assessed loss for year at tax, ltd to balance of other.
Alnp- balance equals total assessed loss for year x tax, less alp balance.
Alnp +alp= assessed loss remaining at year end x tax.

Disclosure:
Defered tax will be movement in dt in analysis with any rate changes.
Recon of rates will include any permanent difference and the movement in alnp and rate change included in defered tax balance.
Current tax will only occur if there is an amount of taxable income.

Question 7

Cgt effects for temporary differences and permanent difference

Answer 7

Deduct from profit as permanent difference capital gain x 33.4
Deduct rest of accounting profit (excluding gain taken out above) as temporary difference.
Add a recoupment and any loss on sale back as temporary differences.
Add capital gain as temporary differences at 66.6

Question 8

Causes of rate changes of tax

Answer 8

Permanent difference
Exempt temporary differences
Assessed loss not provided for

Question 9

Differed tax liability or asset

Answer 9

If it makes future payments larger because more allowed now than in accounting, will create a liability. If if pay more tax now, will result in less later then an asset.
If the book value is higher than the tax base of an asset, a deferred liability occurs