Cases
Practical case
Brumeval Outillage SA (a fictitious entity) manufactures hand tools and is subject to a single taxation authority. You are preparing the tax charge for the year ended 31 December 20X1, then for the year ended 31 December 20X2, in which the company incurs a tax loss.
Your assignment
Determine which levies fall within IAS 12 and which rate to apply; reconcile accounting profit for 20X1 to taxable profit, calculate current tax and the balance due after instalments, then record the entries and measure their impact. For 20X2, calculate the tax loss and the asset arising from its carryback, determine the current tax position at the reporting date, record the entries and measure their impact.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Fundamental level: the method, help and references are shown.
Method
File checklist
Document 2
Document 3
Document 6
6 documents: open each one to read it.
Document 1Table
Draft 20X1 tax reconciliation prepared by the tax department. Accounting profit before tax: 1,180,000. Add-backs required by the tax law: fines and penalties, 22,000; non-deductible entertainment costs, 18,000; charge to the provision for an employment dispute, not deductible until paid, 60,000. Deduction provided by the tax law: exempt dividends received from an investment, 40,000.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Accounting profit before tax 20X1 | €1,180,000.00 | |
| Fines and penalties 20X1 (add-back) | €22,000.00 | |
| Non-deductible entertainment costs 20X1 (add-back) | €18,000.00 | |
| Charge to the litigation provision 20X1 (add-back) | €60,000.00 | |
| Exempt dividends 20X1 (deduction) | €40,000.00 | |
| Former income tax rate | 24% | |
| Enacted rate applicable to 20X1 profits | 25% | |
| Date of enactment and publication of the act | November 20 20X1 | |
| Instalments paid in 20X1 | €276,000.00 | |
| Date of payment of the 20X1 tax balance | May 15 20X2 | |
| Instalments paid in 20X2 | €155,000.00 | |
| Accounting loss before tax 20X2 | €1,450,000.00 | |
| Fines and penalties 20X2 (add-back) | €30,000.00 | |
| Litigation settlement paid in 20X2 (deduction) | €60,000.00 | |
| Revenue-based levy 20X1 | €35,000.00 | |
| Rate of the revenue-based levy | 0.5% | |
| Rate proposed by the bill | 23% | |
| Date the bill was filed | January 12 20X3 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
20X1 tax reconciliation
Extract from the amending finance act
Tax account statement
20X2 tax reconciliation
Memo on the revenue-based levy
Press cutting on a bill
11 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Which levies fall within IAS 12 and which rate applies to current tax for 20X1?
Set out the facts, the question raised, then your analysis.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Task 2Calculation
Reconcile accounting profit to taxable profit for 20X1.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Reconcile accounting profit to taxable profit for 20X1.
Result: Taxable profit 20X1
Task 3Calculation
Calculate current tax for 20X1.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate current tax for 20X1.
Task 4Calculation
Determine the current tax balance at 31 December 20X1 after deducting the instalments.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Determine the current tax balance at 31 December 20X1 after deducting the instalments.
Task 5Journal entries
Record the 20X1 entries (instalments, tax for the year, application of the instalments).
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 6Effects on the financial statements
What is the impact of the 20X1 entries on the financial statements?
For each financial statement, state the line affected, the direction and the amount.
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 7Calculation
Calculate the 20X2 tax loss and the asset arising from its carryback.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Calculate the 20X2 tax loss and the asset arising from its carryback.
Result: Tax loss available for carryforward
Task 8Calculation
Determine the current tax position at 31 December 20X2.
Start from the data in the pieces, set the formula, check the unit and the order of magnitude.
Part 1 · Calculation
Determine the current tax position at 31 December 20X2.
Result: Current tax asset at 31 December 20X2
Task 9Journal entries
Record the 20X2 entries (payment of the 20X1 balance, instalments, carryback).
Identify the accounts affected and the direction of each movement; check the balance.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 10Effects on the financial statements
What is the impact of the 20X2 entries on the financial statements?
For each financial statement, state the line affected, the direction and the amount.
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 11Conclusion
Write the conclusion.
Write a conclusion that cites the facts and the treatment chosen.
This answer is not marked automatically: after submitting, you will compare it with the solution.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 18).
Document this file
These working papers use the data and results of this case.
Normative references