a THEORY O§ ACCOUNTS SEO RRO DLee nl M3. CMANOA, Laguna (049) 5453807 -26CD-Income Taxes, Leases @ssetihat is nil or zero? a 1, ah the following would rasult in a tax base of ait Fade accounts receivable have a carrying amount ‘of P800,000. The related revenue had already been included in taxable profit (or tax loss) { b. A machine has a remaining carrying value of 80,000 which will be deductible in future periods either as depreciation or through a deduction on disposal. Interest’ receivable has a carrying amount of 90,000. The related interest revenue will be taxed on a cash basis, * 4. Current labilities penalties with a caying amount of P105,000. Fines and penalties are not deductible for tax Purposes Which of the following is the most likely Item to result ima deferred tax asset? ‘a. Using accelerated depreciation for tax purposes ut "straight-line depreciation for accounting, Purposes b. Using the completed-contract method of recognizing construction revenue tax purposes, bbut using percentage-of-completion mathod for, financial reporting purposes c. Prepaid expenses d._Unearned revenues Tracey Limited revalued an item of plant from initial cost of P10 000 to fair value of P15 000. The company tax rate Is 30%, The adjusting journal entry to recognize the tax effect of the revaluation will Include the following item: a. DR Deferredtax asset P3500; b. DR Deferred tax liability P3500; c CR Deferredtax asset P1500: d. CR Deferred tax liability P1500. D’Siiva Limited has a product warranty liability include accrued fines ana? USU-R CPAREVIEW RUCTIONS. Use the provided answer sheet and write the CAPITAL letter of your Dest choice, This Gril is good for ‘minutes. Good Luck! 6 te amounting to P10 000. The product warranty costs | are not tax deductible until paid out to customers. The company tax rate is 30%. The company has a. a deductible temporary difference of P10 000; b._ an assessable temporary difference of P10 000; ca tax base of P10 000; d. a future deductible amount of PO. }) 5. Which of the following statements Is correct? ‘a. In accounting for an operating depreciable asset, the depreciation on the leased property. b. Ifa finance lease contains 3 bargain purchase ‘option (BPO), the lessee should depreciate the leased asset over the lease term only. . The distinction between a sales-type lease and a direct financing lease is based on whether there Is dealer's or manufacturer's profit. 4. The basic distinction between difect financing leases and sales-type leases is that in a direct Tease for a Tancng eos a ge em ta manures or dealer's prot or Tos) Man recone byte lessor at ncn ofthe eas lessee can recognize _ @ (032) 2537900 loc, 218 ava0 City (082) 2250049 a R. M. VALDEZ/ R, GLORIA May 2012 A lease does not qualify as finance lease if . The lease transfer ownership of the leased asset to the lessee at the end of the lease term. b. The lease gives right to the lessee to purchase the ‘eased asset for an amount that is equal to the fair value of the leased asset on exercise date, > . The lease term is for the major part of the economic life of the asset even if title is not transferred. - d. The present value of minimum lease payments amounts to at least substantially all of the fair value of the leased asset. Which of the following statements is correct? 2. All long-term leases should be capitalized in the ‘accounts by the lessee. « b. A lease is a contract which involves at least three patties, the lessor, lessee, and guarantor. . For accounting purposes, leases are classified broadly as operating leases, or sales-type leases, ” . PAS 17 provides guidelines for deciding when lessees should recognize a finance lease, and thus, record the leased item as an asset and a corresponding lease liability. Which of the following statements Is incorrect? ‘a. The lessee's Incremental borrowing rate is the rate that, at the inception of the lease, the lessee would have incurred to borrow over a'similar term the funds necessary to purchase the leased asset. b. One reason for capitalizing a leased asset is so that the financial statements are comparable to those of an entity that purchases such assets outright, c. The classification of a lease is primarily determined by the nature of the leased asset.» . A finance lease transfers substantially the risk and ewards relative to ownership from the lessor to the lessee, whereas an operating lease does not. {fa sale and leaseback transaction results in a finance lease, PAS 17 Leases, provides the following ‘accounting treatment for any excess of sales proceeds over the carrying amount: @. recognize directly in retained earnings of the seller-lessee; b. immediately’ recognize as income by the seller lessee; . defer and amortize over the lease term; d. include in the capitalized amount of the leased asset. ‘An entity classifies a lease of land and buildings as an investment property under PAS 40. The entity has adopted the fair value model. In this case a. Separate measurement of the lease of land and buildings is compulsory. b. Separate measurement of the lease of land and buildings is not required, . The lease is treated as an operating lease. d, The lease cannot be treated as an operating lease. Which of the following Is ot an issue in accounting for defined beneft plans? Page 1 of 2 ToA.1224-26CDEXCEL PROFESSIONAL SERVICES, INC. a2 14, 15 2. The amount of pension expense to be recognized . The amount of pension liability to be reported The amount of funding (contributions) required by the plan d. Disclosures needed to supplement the financial statements Which of the following is a characteristic of a defined benefit pian? 2, Post-employment benefits are based on the plan's formula , Post-employment benefits depend on how well the trustee have managed the plan assets. c. Retirement’ benefit plans are simpler in construction and raise few questions for employers. d._ The investment risk is borne by the employee. Which of the following is a component of the ‘retirement benefit expense? ‘. Contribution made for the period b. Expected retum on plan assets Benefits paid to retirees d. All of the above ‘According to AS19 Employee benefits, which ONE of the following statements best describes ‘other long-/)) 4. term employee benefts'? @. Benefits not falling due wholly within twelve ‘months of the end of the period in which the ‘service Is rendered b. Benefits which fall due within twelve months of the: ‘end of the period in which the service is rendered . Benefits payable as a result of an entity's decision to end an employee's employment before the normal retirement date d. Benefits which are payable after completion of ‘employment Which statement is incorrect regarding recognition of ‘employee benefits? ‘a. The cost of providing employee benefits should be recognized in the period in which the benefit is eamed by the employee, rather than when it is paid or payable. b. For short-term employee benefits, the Uundiscounted amount of the benefits expected to be paid in respect of service rendered by ‘employees in a period should be recognized in that period, ¢. For post-employment benefits, the cost to be recognized in the period is’ the contribution payable in exchange for service rendered by employees during the period, d. The enterprise should recognize the expected cost of profit-sharing and bonus payments when, and ‘only when, it has a legal or constructive obligation to make such payments as a result of past events, and a reliable estimate of the expected cost can be. made, Take home Drilt re ‘An example ofa "deductible temporary difference” ‘occurs when , the installment sales method is used for tax Purposes, but the accrual method of recognizing Sales revenue Is used for financial reporting purposes. 2. b. accelerated depreciation Is used for tax purposes ut straight-line depreciation is used’ for ‘accounting purposes. warranty expenses are recognized on the accrual basis for “financial reporting purposes but recognized as the warranty conditions are met for tax purposes, 4. the completed-contract method of recognizing Construction revenue is used for tax purposes, but the percentage-of-completion method Is used for financial reporting purposes, ‘The process of reporting discontinued operations, net ‘of income tax on the income statement Is known 2s a. interperiod tax allocation . intraperiod tax allocation © deferred tax recognition 4. acerued tax recognition The accounting concept that is principally used to Classify leases into operating and finance is, ‘a. Substance over form. B. Prudence, c. Neutrality 4. Compieteness. Where there is a lease of land and buildings and the title to the land is not transferred, generally the lease {s treated as if @ The land is a finance lease, finance lease, b. The land is a finance lease, the building Is an operating lease. © The land is an operating lease, finance lease. 4. The land is an operating lease, the building Is an ‘operating lease, the building is a the building is a 5. According to PASI9 Employee benefts, which ONE of 6. the following terms best describes benefits which are Payable as a result of an entity's decision to end an employee's employment before the normal retirement date’ a. Post-employment benefits b. Defined contribution plans, c. Termination benefits, 4. Defined benefit plans ‘Should the following items be included in plan assets, according to PAS19 Employee benefits? {1) Assets held by a long-term employee benefit fund, €2) Qualifying insurance policies. Item (1) Ttem (2) No No done, submit your anwer sheet, thank you!