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Practical caseIAS 12L2 · Intermediate

Tax base schedule of an industrial SME: accelerated depreciation, development, provisions and revenue received in advance

5 documents9 tasks≈ 75 min
0 / 13 items completed
Standards
IAS 12 — Income Taxes
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Kerlidou Mécanique SAS (a fictitious entity) manufactures transmission parts. It prepares IFRS financial statements and is subject to a single taxation authority. You are preparing deferred tax for the year ended 31 December 20X3, from the IFRS statement of financial position, the tax file and the deferred tax schedule of the previous year.

Your assignment

For each item, determine the tax base, the temporary difference and its direction; assess recognition and the absence of discounting; calculate the deferred tax liabilities and assets at 31 December 20X3, then the deferred tax expense for the year; 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.

Intermediate level: help remains available, on demand.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 5 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 13) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

5 documents: open each one to read it.

Document 1Table

Fixed asset register

Extract from the fixed asset register at 31 December 20X3. Machine A (acquired on 1 January 20X1, cost 900,000): IFRS carrying amount 630,000; the tax law allows accelerated depreciation, cumulative deductions 20X1 to 20X3: 650,000. Machine B (acquired several years ago, tax cost 400,000): IFRS carrying amount 150,000; cumulative tax deductions: 330,000. Development costs of a new gear reducer, capitalised in 20X3 (criteria of the standard on intangible assets met according to management; amortisation from the start of production on 1 January 20X4): 300,000; the tax law deducted them in full in 20X3, i.e. 300,000.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Carrying amount of machine A€630,000.00
Tax cost of machine A€900,000.00
Cumulative tax deductions on machine A€650,000.00
Carrying amount of machine B€150,000.00
Tax cost of machine B€400,000.00
Cumulative tax deductions on machine B€330,000.00
Carrying amount of development costs€300,000.00
Development costs deducted for tax in 20X3€300,000.00
Warranty provision€160,000.00
Revenue received in advance€80,000.00
Fine payable€25,000.00
Trade receivables€450,000.00
Research costs recognised as an expense in 20X3€120,000.00
Research costs deducted for tax in 20X3€40,000.00
Opening deferred tax liability, machine A€80,000.00
Opening deferred tax liability, machine B€30,000.00
Opening deferred tax asset, warranties€30,000.00
Opening deferred tax asset, revenue received in advance€12,500.00
Opening deferred tax liability, total€110,000.00
Opening deferred tax asset, total€42,500.00
Enacted tax rate for the reversal periods25%
Discount rate proposed by the accountant4%
Maximum net debt / EBITDA ratio3.5 units

Sorting the information

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.

To sort5

  • Fixed asset register

  • Extract from the statement of financial position and the tax file

  • Deferred tax schedule at 31 December 20X2

  • Tax department memo

  • Extract from the loan agreement

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      9 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.

      1. Task 1Calculation

        Calculate the tax base of the assets (machines, development, research, receivables).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the tax base of the assets (machines, development, research, receivables).

        1. €
        2. €
        3. €
        4. €
        5. €

        Checks

        • 0 / 5 steps entered
        • Amounts readable

        Result: Tax base of trade receivables

      2. Task 2Calculation

        Calculate the tax base of the liabilities (warranties, revenue received in advance, fine).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the tax base of the liabilities (warranties, revenue received in advance, fine).

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Tax base of the fine payable

      3. Task 3Calculation

        Calculate the temporary differences and state their direction (taxable or deductible).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the temporary differences and state their direction (taxable or deductible).

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €
        8. €

        Checks

        • 0 / 8 steps entered
        • Amounts readable

        Result: Total deductible temporary differences

      4. Task 4Analysis

        Assess the recognition of deferred tax and the discounting proposal.

      5. Task 5Calculation

        Calculate the deferred tax liabilities and assets at 31 December 20X3.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the deferred tax liabilities and assets at 31 December 20X3.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €
        8. €

        Checks

        • 0 / 8 steps entered
        • Amounts readable

        Result: Deferred tax asset at 31 December 20X3

      6. Task 6Calculation

        Calculate the movements for the year and the deferred tax expense in profit or loss.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the movements for the year and the deferred tax expense in profit or loss.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Net deferred tax expense in profit or loss

      7. Task 7Journal entries

        Record the deferred tax entries for 20X3.

        Calculator

        Click in an answer field to be able to insert the result.

        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.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        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.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        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.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      8. Task 8Effects on the financial statements

        What is the impact of the entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      9. Task 9Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 13).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 12 §5
      • IAS 12 §7
      • IAS 12 §8
      • IAS 12 §9
      • IAS 12 §15
      • IAS 12 §16
      • IAS 12
      • IAS 12 §24
      • IAS 12 §53
      • IAS 12 §54
      • IAS 12 §55
      • IAS 12 §58