5 Quiz Income Taxes

International Financial Reporting Standards
Quiz:
Income taxes
Joint World Bank and IFRS Foundation ‘train
the trainers’ workshop hosted by the ECCB,
30 April to 4 May 2012
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Quiz: income taxes 2
Question 1: Entity has tax loss 30,000 in 20X8

and taxable profit 20,000 in 20X7. Tax rate 40%.
Tax loss can be carried back one prior year only
(no carryforward). Correct entry?
a. Debit Current tax asset 8,000
Credit Current tax income 8,000
b. Debit Current tax asset 12,000
c. Debit Current tax expense 8,000
Credit Current tax liability 8,000
d. Debit Deferred tax asset 8,000
Credit Deferred tax income 8,000
2011Foundation
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Question 1: Tax loss 30,000 in 20X8 and taxable

profit 20,000 in 20X7. Tax rate 40%. Tax loss
carried back one prior year only. Correct entry?
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Question 2: Entity has tax loss 30,000 in 20X8.

Projected taxable profit for 20X9 is 20,000. Tax
rate 40%. Tax loss can be carried forward one
year only (no carryback). Correct entry?
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Question 2: Entity has tax loss 30,000 in 20X8.

Projected taxable profit for 20X9 is 20,000. Tax
rate 40%. Tax loss can be carried forward one
year only (no carryback). Correct entry?
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Question 3: At 31/12/X2 entity has an interest

receivable CU4,000 that will be taxable in X3
when received in cash. Tax rate 20% first 500,000
income and 30% on excess. Taxable profit in X2 =
450,000. Estimated taxable profit X3 = 550,000.
What is deferred tax liability 31/12/X2 for
receivable?
a. 1,200 b. 1,000 c. 940
d. 836 e. 800
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Ques. 3: What is deferred tax liability 31/12/X2 for

receivable?
a. 1,200 b. 1,000 c. 940
d. 836* e. 800
Estimated effective tax rate = [(500,000
× 20%) + (50,000 × 30%)] ÷ 550,000 =
115,000 ÷ 550,000 = 20.91%.
4,000 × 20.91% = 836
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Question 4: Tax rate is 30% on operating profit,

0% on capital gains. In 20X1 entity has pre-tax
operating profit 50,000 and gain on sale of an
asset of 5,000. Entity believes gain is capital
gain, but small possibility (estimated 20%) that
tax authority says it is operating. What is current
tax liability at 31/12/X1?
a. 16,500 b. 16,200
c. 15,300 d. 15,000
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Question 4: What is current tax liability at 31/12/X1?

a. 16,500 b. 16,200
c. 15,300 d. 15,000
IAS 12 is silent on the treatment of uncertain tax
positions. One way of treating the uncertain tax
positions is to use probability weighted amounts:
CU50,000 x 30% = CU15,000 tax on oper. profit
(CU5,000 x 80% x 0%) + (CU5,000 x 20% x 30%)
= CU300 tax on capital gain
2011Foundation
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Ques. 5: Which is the correct use of discounting

in measuring income tax assets and liabilities?
Choice Current tax Deferred tax

assets and assets and
liabilities liabilities
a Discounted Not Discounted
b Not Discounted Discounted
c Discounted Discounted
d Not Discounted
© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org
Not Discounted
Ques. 5: Which is the correct use of discounting

in measuring income tax assets and liabilities?
Choice Current tax Deferred tax

assets and assets and
liabilities liabilities
a Discounted Not Discounted
b Not Discounted Discounted
c Discounted Discounted
d Not Discounted Not Discounted
Question 6: Tax year ends 31 December.

By 30 September entity must pay provisional tax
based on prior year’s taxable profit.
Tax rate is 30%. For 20X4 taxable profit was 50,000.
Consequently, on 30/09/20X5 entity paid 15,000
toward 20X5 taxes.
Taxable profit for 20X5 = 40,000.
•What is tax expense for 20X5?
•What is current tax asset at 20X5?
•What journal entry should be made at 31/12/X5?
2011Foundation
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Question 6:
Tax expense 20X5: 30% x 40,000 = 12,000
Current tax asset at 31/12/20X5: 15,000 paid minus
12,000 owed. Tax asset is a receivable from the tax
authority.
Journal entry at 31/12/20X5:
Debit current tax asset 3,000
Credit tax expense* 3,000
*Assumes that on 30/09/20X5 the debit for the 15,000

payment was to ‘tax expense’.
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Question 7:
Entity A purchased an item of PPE on 1 January
20X1 for CU1,000. The estimated useful life of the
PPE is 10 years and the residual value was
estimated to be zero. These estimates have not
changed.
The tax authorities in the jurisdiction in which
Entity A operates grant allowances over five years
for such PPE.
The applicable tax rate is 30 per cent.
2011Foundation
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Question 7 continued:
At 31 December 20X1, the deferred tax balance
and profit or loss effect are:
a. Liability of CU30, income of CU30
b. Asset of CU30, income of CU30
c. Liability of CU30, expense of CU30
d. Asset of CU30, expense of CU30
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At 31 December 20X1, the deferred tax balance
and profit or loss effect are:
a. Liability of CU30, income of CU30
b. Asset of CU30, income of CU30
c. Liability of CU30, expense of CU30
d. Asset of CU30, expense of CU30
2011Foundation
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Question 8:
The facts are the same as Question 7.
On 31 December 20X1, Entity A revalued the asset
to CU1,300.
What journal entry should be processed in the
financial records of Entity A to account for the tax
effect of the revaluation?
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Question 8:
Dr Asset—PPE CU400
Cr Income—OCI: revaluation gain CU280
Cr Deferred tax liability CU120
CU1,300 revalued amount – CU900 previous carrying
amount = CU400.
CU400 increase in carrying amount x 30% = CU120
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Question 9:
The facts are the same as Question 8.
What journal entry should be processed in the
financial records of Entity A to account for the tax
effect of the 20X2 depreciation of the PPE?
The estimates of estimated useful life and
residual value remain unchanged.
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Question 9:
Dr Expense—profit or loss: depreciation CU144
Cr Asset—PPE CU144
CU1,300/9 years = CU144
Dr Expense—profit or loss: deferred tax CU17

Cr Deferred tax liability CU17
(CU144 accounting depreciation less CU200 tax
depreciation) x 30% = CU17
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Question 10:
•Entity A owns a piece of land classified as PPE.
The land is not depreciated and is measured
using the revaluation model in IAS 16.
•On 1 January 20X1 the entity bought the land for
CU1,500 (ie historical cost).
•On 31 December 20X1 the land was revalued to
CU2,000.
•The applicable tax rate for operating profits is
30%. Proceeds on sale in excess of historical
cost are taxed only at 15%
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•At what rate should the tax consequences of the
revaluation of the land be measured?
a. 30 per cent
b. 15 per cent
c. No tax consequences as the land is a non-
depreciable asset
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•At what rate should the tax consequences of the
revaluation of the land be measured?
a. 30 per cent
b. 15 per cent
c. No tax consequences as the land is a non-
depreciable asset
Reason: the land can only be recovered through sale.

It is not consumed in the process of generating
income.
2011Foundation
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Questions or comments? 24
Expressions of individual views by

members of the IASB and its staff
are encouraged.
The views expressed in this

presentation are those of the
presenter.
Official positions of the IASB on

accounting matters are determined
only after extensive due process
and deliberation.

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
25
The requirements are set out in International Financial

Reporting Standards (IFRSs), as issued by the IASB at 1
January 2012 with an effective date after 1 January 2012
but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and the
publishers do not accept responsibility for loss caused to
any person who acts or refrains from acting in reliance on
the material in this PowerPoint presentation, whether such
loss is caused by negligence or otherwise.
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International Financial Reporting Standards

The views expressed in this presentation are those of the

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Question 1: Entity has tax loss 30,000 in 20X8

Question 1: Tax loss 30,000 in 20X8 and taxable

Question 2: Entity has tax loss 30,000 in 20X8.

Question 2: Entity has tax loss 30,000 in 20X8.

Question 3: At 31/12/X2 entity has an interest

Ques. 3: What is deferred tax liability 31/12/X2 for

Question 4: Tax rate is 30% on operating profit,

Question 4: What is current tax liability at 31/12/X1?

Ques. 5: Which is the correct use of discounting

Choice Current tax Deferred tax

Ques. 5: Which is the correct use of discounting

Choice Current tax Deferred tax

Question 6: Tax year ends 31 December.

*Assumes that on 30/09/20X5 the debit for the 15,000

Dr Expense—profit or loss: deferred tax CU17

Reason: the land can only be recovered through sale.

Expressions of individual views by

The views expressed in this

Official positions of the IASB on

© 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

The requirements are set out in International Financial

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