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International Accounting Standards permit certain assets to be carried at fair value or to be revealed (examples in IAS 16, property and plant equipment. IAS 38, Intangible assets, IAS 39, financial instrument Recognition and measurement and IAS 40 investment property). In some jurisdictions, the revaluation or other restatement of an asset to fair value affects taxable profit (tax loss) for the current period. As a result the tax base of the asset is adjusted and no temporary differences arises. In other jurisdictions, the revaluation or restatement of an asset does not affect taxable profit in the period of the revaluation or restatement and consequently the tax base of the asset is not adjusted. Nevertheless the future recovery of the carrying amount will result in a taxable flow of economic benefits to the enterprise and the amount that will be deductible for tax purposes will differ from the amount of those economic benefits. The differences between the carrying amount of a revalued asset and its base is a temporary difference and gives rise to a deferred tax liability or asset. This is true even if;
(a) The enterprise does not intend to dispose of the assets. In such cases the revalued carrying amount of the asset will be recovered through use and this will generate taxable income which exceeds the depreciation that will be allowable for tax purposes in future periods; or
(b) Tax on capital gains is deferred if the periods of the disposal of the assets are invested in similar assets. In such cases the tax will ultimately become payable on sale or use of the similar assets.
Wilfykil answered the question on February 8, 2019 at 08:14
- IAS 12 (revised) “Income Taxes” requires an enterprise to provide for deferred tax in full for all deferred tax liabilities with only limited expectations. The...(Solved)
IAS 12 (revised) “Income Taxes” requires an enterprise to provide for deferred tax in full for all deferred tax liabilities with only limited expectations. The original IAS 12, and the equivalent Kenyan Accounting Standard, allowed an enterprise not to recognize deferred tax assets and liabilities where there was reasonable evidence that timing differences would not reverse for some considerable period ahead; this was known as the partial provision method.
The original IAS 12 did not refer explicitly to fair value adjustments made on a business combination and did not require an enterprise to recognize a deferred tax liability in respect of asset revaluations. The revised IAS 12 now requires deferred tax adjustments for these items and classifies them as temporary differences.
Explain why the IASC decided to require recognition of the deferred tax liability for all temporary differences (with certain exceptions) rather than allowing the partial provision method.
Date posted: February 8, 2019. Answers (1)
- Calculate The current tax account, deferred tax account and revaluation account for the years 1999 and 2000(Solved)
Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000, the company changed to deferred tax method and the new policy was to be applied retroactively to the accounts of the years ended 30 June 1999 and 2000.
The following are the balance sheets of the company for the two years ended 30 June 199 and 2000 before incorporating tax expense for the year 2000.
Calculate The current tax account, deferred tax account and revaluation account for the years 1999 and 2000
Date posted: February 8, 2019. Answers (1)
- Using the method recommended by the revised IAS 12, calculate deferred tax expense or income for the years 1999 and 2000(Solved)
Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000, the company changed to deferred tax method and the new policy was to be applied retroactively to the accounts of the years ended 30 June 1999 and 2000.
The following are the balance sheets of the company for the two years ended 30 June 199 and 2000 before incorporating tax expense for the year 2000.
Using the method recommended by the revised IAS 12, calculate deferred tax expense or income for the years 1999 and 2000
Date posted: February 8, 2019. Answers (1)
- Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000,...(Solved)
Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000, the company changed to deferred tax method and the new policy was to be applied retroactively to the accounts of the years ended 30 June 1999 and 2000.
The following are the balance sheets of the company for the two years ended 30 June 199 and 2000 before incorporating tax expense for the year 2000.
Calculate Current tax for the year ended 30 June 2000
Date posted: February 8, 2019. Answers (1)
- Compute the deferred tax charge for the year ended 31 March 2001 on: 1. Full-provision basis 2. Partial-provision basis(Solved)
Baobab Ltd. was incorporated on 1 April 2000. In the year ended 31 March 2001, the company made a profit before taxation of Sh.10,000,000 (depreciation charged being Sh.1,000,000). The company had made the following capital additions:
Compute the deferred tax charge for the year ended 31 March 2001 on:
1. Full-provision basis
2. Partial-provision basis
(Show the profit and loss account and balance sheet extracts with respect to the provisions under each method).
Date posted: February 8, 2019. Answers (1)
- Compute the corporation payable for the year ended 31 March 2001(Solved)
Baobab Ltd. was incorporated on 1 April 2000. In the year ended 31 March 2001, the company made a profit before taxation of Sh.10,000,000 (depreciation charged being Sh.1,000,000). The company had made the following capital additions:
Compute the corporation payable for the year ended 31 March 2001
Date posted: February 8, 2019. Answers (1)
- The original IAS 12 did not refer explicitly to fair value adjustments made on a business combination and did not require an enterprise to recognize...(Solved)
The original IAS 12 did not refer explicitly to fair value adjustments made on a business combination and did not require an enterprise to recognize a deferred tax liability in respect of asset revaluations. The revised IAS 12 “income taxes” now requires deferred tax adjustments for these items and classifies them as temporary differences.
Explain the reasons why IAS 12 (revised) requires companies to provide for deferred taxation on revaluations of assets and fair value adjustments on a business combination irrespective of the tax effect in the current accounting period.
Date posted: February 8, 2019. Answers (1)
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Silversands Manufacturing Company Ltd. has entered into an agreement with a finance company, to lease a machine for a four year period. Under the terms of the agreement, the machine is to be made available to Silversands Manufacturing Company Ltd. on 1 January 2005, when an immediate payment of Sh. 2,550,000 will be made, followed by seven semi-annual payments of an equivalent amount.
The fair market price of the machine on 1 January 2005 is expected to be Sh. 16,320,000. The estimated life of this type of machine is four years. The implicit rate of interest in the transaction is 6.94% payable semi-annually and the corporate tax rate is 30%. Silversands Manufacturing Company Ltd. has a policy of depreciating machines of this type over a four year period on the straight line basis.
Assume the lease is to be capitalized.
Show Balance sheet extracts of Silversands Manufacturing Company Ltd. as at 31 December 2005 and 2006.
(use the acturial method to allocate the interest charge)
Date posted: February 8, 2019. Answers (1)
- Silversands Manufacturing Company Ltd. has entered into an agreement with a finance company, to lease a machine for a four year period. Under the terms...(Solved)
Silversands Manufacturing Company Ltd. has entered into an agreement with a finance company, to lease a machine for a four year period. Under the terms of the agreement, the machine is to be made available to Silversands Manufacturing Company Ltd. on 1 January 2005, when an immediate payment of Sh. 2,550,000 will be made, followed by seven semi-annual payments of an equivalent amount.
The fair market price of the machine on 1 January 2005 is expected to be Sh. 16,320,000. The estimated life of this type of machine is four years. The implicit rate of interest in the transaction is 6.94% payable semi-annually and the corporate tax rate is 30%. Silversands Manufacturing Company Ltd. has a policy of depreciating machines of this type over a four year period on the straight line basis.
Assume the lease is to be capitalized.
Show how the above transactions will be reflected in the profit and loss account of Silversands Manufacturing Company Ltd. for each of the four years ending 31 December 2005, 2006, 2007 and 2008
Date posted: February 8, 2019. Answers (1)
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In the context of IAS 17 (Leases), briefly explain the meaning of the term Contingent rent.
Date posted: February 8, 2019. Answers (1)
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In the context of IAS 17 (Leases), briefly explain the meaning of the term: Guaranteed residual value.
Date posted: February 8, 2019. Answers (1)
- In the context of IAS 17 (Leases), briefly explain the meaning of the term: Finance lease.(Solved)
In the context of IAS 17 (Leases), briefly explain the meaning of the term: Finance lease.
Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)
- Determine Balance sheet extracts using two methods: Muniu Ltd received a 20 % grant towards the cost of new item of machinery that cost ksh. 100,000 kshs.The machinery her on expected life...(Solved)
Muniu Ltd received a 20 % grant towards the cost of new item of machinery that cost ksh. 100,000 kshs.The machinery her on expected life of 4yrs and nil residual value. The expected profits of the co. before accounting for deprecation of the new machinery amounts to 50,000 p. a in each year of the machinery life
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Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)
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In the context of IAS 16 property, plant and equipment,Outline any two disclosure requirement for items of property, plant and equipment which are stated at revalued amounts
Date posted: February 8, 2019. Answers (1)
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Date posted: February 8, 2019. Answers (1)