Chapter 04 - Multiple choice quiz

Income tax payable by a company is based on its:

A.	taxable income;

B.	accounting profit;

C.	total revenue;

D.	total deductions.

To the extent that tax payable exists and has not yet been paid a company will recognise:

A.	current tax asset;

B.	current tax liability;

C.	non-current asset;

D.	non-current liability.

The tax effect method of accounting for a company's income tax is based on an assumption that:

A.	income tax expense is equal to income tax payable;

B.	income tax expense is not equal to current tax liability;

C.	an accounting balance sheet and a tax balance sheet are the same;

D.	a tax balance sheet is prepared according to accounting standards.

Current tax consequences of business operations give rise to:

A.	a deferred liability for income tax payable;

B.	a non-current liability for taxes payable;

C.	a current liability for income tax payable;

D.	a contingent liability for taxes payable.

For companies that choose to adopt the Simplified Tax System (STS), tax calculations are based upon the:

A.	accrual basis of accounting;

B.	deferred tax accounting method;

C.	future tax consequences of business transactions;

D.	cash basis of accounting;

Differences may arise between the accounting treatment of an item and its tax treatment because:

A.	the tax treatment follows accrual principles and accounting treatment focuses on cash flows;

B.	accounting treatment follows accounting concepts while the tax treatment is based on GAAP;

C.	tax treatment follows cash flow principles and the accounting treatment follows accrual principles;

D.	accountants are not obliged to follow any rules when compiling a company's tax return.

Select the two words that best fit the gaps in the following sentence. When dealing with 'bad and doubtful debts' a difference will arise between accounting and tax treatment of the item because under accounting principles the item is recognised when_________ while under tax law the item is written off when________.

A.	doubtful, bad;

B.	bad, accrued.

C.	sold, paid;

D.	bad, sold.

The main focus of AASB112 Income Taxes is to prescribe the accounting treatment for:

A.	current tax consequences of business transactions;

B.	current cash flow to the taxation authorities for taxes due;

C.	future tax consequences of business events;

D.	relating to the preparation of a company's tax return.

The tax effect accounting method adopted in AASB 112 Income Taxes focuses on the carrying amounts of an entity's:

A.	net assets and the tax values of those net assets;

B.	revenue and the assessable portion of that revenue;

C.	expenses and the deductible portion of those expenses;

D.	equity and how it has changed across the period.

10.

Current and deferred tax assets lead to the recognition of:

reserves;

losses;

expenses;

income.

11.

ABC Limited adopted tax effect accounting during the current financial period. When estimating the balance date adjustments at the end of the financial period the following information was determined: Current tax liability $10 000; Deferred tax liability $12 000; Deferred tax asset $15 000. The amount that this company will recognise as current Income tax expense is:

$10 000;

$22 000;

$25 000;

$7 000.

12.

Barton Limited has an accounting profit before tax of $200 000. All of the following items have been included in the accounting profit: depreciation of equipment $30 000 (tax deductible depreciation is $20 000); entertainment expenses $15 000 (non-deductible for tax purposes); Long service leave expense provided $6 000 (no employee took long service leave during the year). The tax rate is 30%. The amount of current tax liability is:

$81 300;

$69 300;

$50 700;

$38 700.

13.

Juicy Limited has an accounting profit of $100 000. The following items are included in that profit: depreciation on motor vehicles $8 000; non-tax deductible entertainment expenses $5 000. Depreciation on motor vehicles is double the accounting rate. The tax on company income is 30%. Which of the following is the amount of taxable income for this company?

$71 000;

$97 000;

$103 000;

$129 000.

14.

Roland Limited has a depreciable asset with a carrying value of $50 000. The tax base of this asset is $40 000. The tax rate is 30%. As a result, which of the following future tax items does Roland Limited have?

A.	A future tax asset of $10 000.

B.	A future tax liability of $10 000;

C.	A future tax asset of $3 000;

D.	A future tax liability of $3 000.

15.

Big Limited has an asset with a carrying value of $30 000 and a tax base of $50 000. The tax rate is 30%. Which of the following will be part of the balance date journal entries made to recognise tax effect accounting for this company?

A.	CR Deferred tax liability $6 000;

B.	DR Deferred tax asset $6 000;

C.	DR Income tax expense $6 000;

D.	CR Income tax liability $6 000.

16.

The tax base for an asset is determined using which of the following formulae? Tax base for an asset =

A.	Carrying amount – Future taxable amount + Future deductible amount;

B.	Carrying amount + Future taxable amount – Future deductible amount;

C.	Carrying amount – Future taxable amount – Future deductible amount;

D.	Carrying amount + Future taxable amount + Future deductible amount.

17.

David Limited acquired an asset on 1 July 20X7 for $50 000. Accounting depreciation is charged at the rate of 25% straight line. Tax depreciation is charged at the rate of 50% straight line. The asset has no residual value. At 30 June 20X8 the tax base of the asset is:

$50 000;

$37 500;

$25 000;

$12 500.

18.

Diana Limited has accounts receivable with a carrying value of $17 000. The carrying value includes an allowance for doubtful debts of $3 000. The tax rate is 30%. This company must recognise the following deferred tax item:

A.	CR Deferred tax liability $6 000;

B.	DR Deferred tax asset $6 000;

C.	CR Deferred tax liability $900;

D.	DR Deferred tax asset $900.

19.

Steveo Limited acquired an asset 'Goodwill' for $60 000. At balance date the Goodwill had a carrying value of $20 000. The tax base of this asset is zero. If the tax rate is 30%, what is the amount of the deferred tax item at balance date?

$0;

$6 000;

$12 000;

$18 000.

20.

A temporary difference between the carrying value of an asset (or liability) and its tax base that results in taxable amounts in future periods when that item is recovered or settled are known as:

A.	taxable temporary differences;

B.	deductible temporary differences;

C.	permanent differences;

D.	the taxable value of the item.

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