Deferred Taxes Overview

Questions and Answers

What occurs when deferred tax liabilities arise?

Income tax expense is higher than taxes payable. (correct)

Current tax paid is higher than the tax accrued.

Taxes payable is reported higher than income tax expense.

Income tax accounting rules defer recognition of expenses.

Which of the following describes a deferred tax asset?

It indicates advance tax payments or overpayment of taxes. (correct)

It typically arises from underpayment of taxes.

It becomes a liability if taxes are overpaid.

It represents taxes payable in future periods.

What is the main reason for the timing difference that leads to deferred tax liabilities?

Advance recognition of income for tax purposes.

Overstated expenses in financial reporting.

Differing income tax regulations between jurisdictions.

Differences in reporting standards under IFRS and tax filings. (correct)

How are deferred tax liabilities represented on financial statements?

As liabilities recognized in the current period. Signup and view all the answers

Under what circumstance would a company record a deferred tax asset?

When the company pays advanced taxes or overpays. Signup and view all the answers

What distinguishes deferred tax liabilities from deferred tax assets?

Deferred tax liabilities are future tax obligations, while deferred tax assets are future tax benefits. Signup and view all the answers

What can lead to a difference between income tax expense and income taxes payable?

Timing differences in financial reporting and tax payment. Signup and view all the answers

What characterizes a deferred tax liability in terms of its creation?

It occurs when income tax rules defer income recognition. Signup and view all the answers

When is a provision recognized for tax purposes according to IAS 37?

Only when the cash outflow actually occurs Signup and view all the answers

Why might research and development costs create deferred tax assets?

They may be recognized as expenses without immediate tax deduction Signup and view all the answers

What happens when identifiable liabilities are recognized at fair value in a business combination under IFRS 3?

No adjustment is made for tax purposes Signup and view all the answers

In the Hunt Company illustration, what causes taxable income to be lower than pretax financial information?

A deductible amount will occur when the liability is settled Signup and view all the answers

What does it imply when assets are revalued downwards without affecting taxable profit?

There may be deferred tax assets created later Signup and view all the answers

What is the total income tax expense reported for ABC Company at the end of 2015?

Br 28,000 Signup and view all the answers

What was the deferred tax liability reported by ABC Company at the end of 2015?

Br 4,000 Signup and view all the answers

What is the deferred tax liability at the end of 2014?

Br 12,000 Signup and view all the answers

How much did ABC Company reduce its deferred tax liability by at the end of 2016?

Br 4,000 Signup and view all the answers

What is the tax rate used in computing the deferred tax liability?

40% Signup and view all the answers

What is the current tax expense for ABC Company for 2015?

Br 36,000 Signup and view all the answers

What were the taxable amounts for Starfleet Corporation in 2019 from the temporary difference?

$55,000 Signup and view all the answers

For ABC Company, what was the current tax expense for 2014?

Br 16,000 Signup and view all the answers

What was the deferred tax liability at the beginning of 2018 for Starfleet Corporation?

$0 Signup and view all the answers

How is the deferred tax expense for 2014 calculated?

Ending deferred tax liability - Beginning deferred tax liability Signup and view all the answers

What is the total amount of future taxable amounts due to existing temporary differences?

Br 30,000 Signup and view all the answers

How much was the deferred tax liability at the end of 2016 for ABC Company?

Br 0 Signup and view all the answers

What two components make up the income tax expense for 2014 according to the computation here?

Current tax expense and deferred tax expense Signup and view all the answers

What tax rate does Starfleet Corporation apply for all years?

30% Signup and view all the answers

What was the deferred tax liability at the beginning of 2014 for ABC Company?

Br 0 Signup and view all the answers

Which computation shows the increase in the deferred tax liability balance during the accounting period?

Deferred tax liability at end of year - Deferred tax liability at beginning of year Signup and view all the answers

What happens when there are taxable temporary differences?

They give rise to deferred tax liabilities. Signup and view all the answers

How is a net operating loss (NOL) defined?

When expenses are greater than revenues for specific periods. Signup and view all the answers

What is the tax effect of deductible temporary differences?

They result in tax deductions or savings in the future. Signup and view all the answers

Which of the following is true regarding current tax expense calculated from taxable income?

It is calculated based on current taxable income. Signup and view all the answers

What do temporary differences indicate in financial reporting?

They cause differences between the accounting and tax bases of assets and liabilities. Signup and view all the answers

In which scenario would a company benefit from a net operating loss?

When allowed to offset future taxable income. Signup and view all the answers

What is the accounting entry for a deferred tax asset?

Recorded due to deductible temporary differences. Signup and view all the answers

What results from a company's expenses exceeding its revenues?

A net operating loss (NOL). Signup and view all the answers

Study Notes