Amsterdam Business School IAS 12 – Income Taxes – Questions IFRS 2 – Share-

based Payments – Questions

Oleksandra Kochubei 1294135
Benjamin Tetteroo 13851322

Part 1. Income Taxes

Question 1.1. Modified version of exercise 6.5 from textbook

The profit before tax of Violet Ltd. for the year ended December 31, 2022, amounted
to €60,000, and included the following revenue and expense items:

Rent revenue €3,000

Government grant received (non-taxable) 1,000
Bad debts expense 6,000
Depreciation of plant 5,000
Annual leave expense 3,000
Entertainment costs (non-deductible) 1,800
Depreciation of buildings (non-deductible) 800

The statements of financial position at the end of 2022 and 2021 showed the following
assets and liabilities:
2022 2021
Assets
Cash 8,000 8,500
Inventory 17,000 15,500
Receivables 50,000 48,000
Allowance for doubtful accounts (5,500) (4,000)
Office supplies 2,500 2,200
Plant 50,000 50,000
Accumulated depreciation – plant (26,000) (21,000)
Buildings 30,000 30,000
Accumulated depreciation – buildings (14,800) (14,000)
Goodwill (net) (7,000) (7,000)
Deferred tax asset ? 4,050
Liabilities
Accounts payable 29,000 26,000
Provision for annual leave
4,000 3,000
Rent received in advance
2,500 2,000
Deferred tax liability
? 3,150

Additional information:
a)Accumulated depreciation of plant for tax purposes was 315,000 at December 31,
2021, and depreciation of plant for tax purposes for the year ended December 31,
2022, amounted to 7,500.

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b)The tax rate is 30%.

Required

Determine the income taxes payable for the year 2022.

Accounting profit 60,000

Add:
Entertainment costs (non-deductible) 1,800
Depreciation of buildings (non-deductible) 800
Depreciation of plant 5,000
Annual leave expense 3,000
Bad debts expense 6,000

16,600
Deduct:

Rent revenue 3,000

Government grant received (non-taxable) 1,000
Bad debts written off 4,500
Annual leave paid 2,000 10,500
Taxable profit 66,100
Current liability at 30% 19,830

Recognition of current liability:

Income tax expense (current) 19,830
Current tax liability 19,830

Question 1.2. Modified version of exercise 6.6 from textbook

The following are all independent situations.

a) The entity has an allowance for doubtful debts of €10,000 at the end of the current
year relating to accounts receivable of €125,000. The prior year balances for these
accounts were €8,500 and €97,500 respectively. During the current year, debts
worth €9,250 were written off as uncollectable.
b) The entity sold a vehicle at the end of the current year for €15,000. The vehicle
cost €100,000 when purchased 3 years ago, and had a carrying amount of €25,000
when sold. The taxation depreciation rate for equipment of this type is 33%.
c) The entity has recognised an interest receivable asset with a beginning balance of
€17,000 and an ending balance of €19,500 for the current year. During the year,
interest of €127,000 was received in cash.

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d) At the end of the current year, the entity has recognised a liability of €4,000 in
respect of outstanding fines for non-compliance with safety legislation. Such fines
are not tax-deductible.

Required

Prepare the journal entries for deferred tax on the creation or reversal of any
temporary differences (i.e. income tax expense and DTA/DTL entries). Assume a tax
rate of 30%. Explanations are NOT required, but show your calculations.

A)
Deferred tax asset D 450 (10,000*0.3-8,500*0.3)
Income tax income C 450

B)
Deferred tax liability D 7,500 (25,00*0.3)
Income tax income C 7,500

C)
Income tax income D 750(19,500*0.3 -17000*0.3)
Deferred tax liability C 750

D)
Permanent difference

Part 2. Share-based Payments

Question 2.1 Cash-settled share-based payments

On January 1, 2020, Gasly Inc. granted 500 share-appreciation rights to its employees,
which the employees can settle in cash within 2 years after the vesting date when they
remain in the employ of the company at that time. The share-appreciation rights vest
after 3 years. The company expects that 20 percent of employees will leave before the
vesting date and this expectation turns out to be true. Also, 30 percent of employees
will convert their share-appreciation rights into cash at the end of year 3. The fair
value of the share-appreciation rights at the end of each period is as follows:

Year Fair value Intrinsic value

2020 €4.50
2021 €6.00
2022 €7.00 €4.00

Required

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Compute the expense the company should recognize for the fiscal year 2022.

2020: 500*0.8*4.50*1/3 = 600

2021: 500*0.8*6* 2/3-600 =1000
2022: (500*0.8-150)*7 -1600=150
150*4=600

Question 2.2

Look up the annual report of Just Eat Takeaway for the year ended December 31,
2020 (https://www.justeattakeaway.com/annual-reports). In Note 6 to the Financial
Statements, Share-based payments (on pp179-188), the company provides disclosures
related to its Employee Share Options Plan (ESOP).

Required

Using the relevant information from this disclosure compute an estimate of the total
expense recognized by the company in 2020 that relates to the shares and options that
were granted under the ESOP in 2020.

The estimate of the total expense recognized by the company in 2020 is 4679

Notes

The 2020 annual report, being old, is to be found at the very bottom of the page. Do
NOT use the 2022 annual report!
Do NOT use the “Weighted average exercise price” listed in the table on p184.
For the valuation of stock options use the valuation model in the Excel file provided.