Question bank — IAS 12 — Income Taxes
556 questions in FR/EN/ES, scored by the real scoring engine.
Objective of the standard4 questions
- IAS 12 is limited to the tax payable for the year: the future tax consequences of recovering the assets and settling the liabilities in the statement of financial position are outside its objective.True / falseL1
- Where recovering the carrying amount of an asset will probably make future tax payments larger than if it had no tax consequences, IAS 12 requires a deferred tax liability to be recognised, with limited exceptions.True / falseL1
- What is the principal issue addressed by IAS 12?Single choiceL1
- Settling a liability in the statement of financial position will probably make the entity's future tax payments smaller than if it had no tax consequences. What does the core principle of IAS 12 require?Single choiceL1
Scope: income taxes, withholding taxes, grants and tax credits19 questions
- What does IAS 12 apply to?Single choiceL1
- A foreign tax computed on the taxable profit of a branch located outside the entity's country is an income tax under IAS 12, just like the domestic tax on profits.True / falseL1
- A levy equal to a percentage of revenue, with no reference to profit, becomes an income tax under IAS 12 as soon as it is paid to the tax authorities.True / falseL1
- The withholding tax that a subsidiary must pay on the dividends it distributes to its parent is, for the parent as the reporting entity, an income tax under IAS 12.True / falseL1
- IAS 12 sets the method of accounting for government grants received by the entity, since such grants generally change its tax.True / falseL2
- Taxes arising from legislation enacted to implement the OECD Pillar Two rules are excluded from the scope of IAS 12, since they are computed under international rules.True / falseL2
- Quilmorel bears the following levies. Which one is an income tax under IAS 12?Single choiceL1
- What primarily characterises an income tax under IAS 12?Single choiceL1
- Ternavel obtains an investment tax credit linked to the purchase of a production line. Which statement about the role of IAS 12 is correct?Single choiceL2
- The Haldermont group is subject to Pillar Two legislation enacted in several countries where it operates. What treatment does IAS 12 require for deferred tax related to those taxes?Single choiceL2
- A joint arrangement in which Moranvel holds rights distributes part of its profits to Moranvel. The law of the joint arrangement's country requires it to pay a withholding tax on that distribution. For Moranvel, how should this withholding tax be classified?Single choiceL1
- Of the levies borne by the Sarbelin group, which are income taxes under IAS 12?Multiple choiceL1Variant
- Which statements about government grants and investment tax credits are correct under IAS 12?Multiple choiceL2
- Which statements about Pillar Two taxes are correct under IAS 12?Multiple choiceL2
- Based on the analysis of the legislation provided by Ombrelys's tax specialists (case data), which levies fall under IAS 12?Multiple choiceL2Variant
- Velquerin, established in a fictitious country, pays a 'contribution to the regional development fund'. Under the law (case data), this contribution is a percentage of the taxable profit determined for the tax on profits, after the same add-backs and deductions. The accounting department classifies it as an operating expense because it 'is not corporation tax'. Which analysis should be adopted?Single choiceL2Variant
- The distributor Corbanis owes a 'territorial equity levy' equal to 0.5% of its gross revenue, payable whether the year is profitable or loss-making (case data). The financial controller proposes including it in income tax expense and computing deferred tax on it. Which analysis should be adopted?Single choiceL2Variant
- Lindomère receives a government grant to finance a press. Under its accounting policy (case data), it deducts the grant from the carrying amount of the press; tax law, however, uses the full cost of the press as its tax base. Which allocation of roles between the standards is correct?Single choiceL2
- A subsidiary of the Astrenor group is subject, in its country, to a qualified domestic minimum top-up tax arising from enacted Pillar Two legislation. The group's tax specialists have computed the top-up tax due for the year (amount given in the case, not yet paid). How should it be treated in the subsidiary's financial statements?Single choiceL2
Accounting profit, taxable profit, current tax and deferred tax17 questions
- The tax expense for a period is, by definition, equal to the amount of tax paid during that period.True / falseL1
- Taxable profit is determined under the rules of the taxation authority; it may therefore differ from accounting profit for the same period.True / falseL1
- Brumelot has recognised as an expense a fine of 40,000, still unpaid at the reporting date; tax law (case data) will never allow it to be deducted. This fine gives rise to a temporary difference.True / falseL1
- The tax expense for the period may be lower than the current tax for that same period when the entity recognises deferred tax income in profit or loss.True / falseL2
- Under IAS 12, what does accounting profit mean?Single choiceL1
- What is the current tax for a period?Single choiceL1
- Why is the tax expense for a period not limited to current tax?Single choiceL1
- Which description corresponds to a deferred tax liability?Single choiceL1
- In respect of which items do income taxes recoverable in future periods constitute deferred tax assets?Multiple choiceL1
- Which statements about the definitions in IAS 12 are correct?Multiple choiceL1
- For Fendral, current tax for the year is 150,000; during the year, a deferred tax liability increased by 20,000 and a deferred tax asset by 5,000, both changes being recognised in profit or loss. Fendral paid instalments of 138,000. Which statements are correct?Multiple choiceL2
- Paltière's manager is surprised: tax expense for the year is 345,000, whereas Paltière paid only 280,000 in instalments. Current tax for the year is 300,000 and a deferred tax liability increased by 45,000 in profit or loss. Write a short, reasoned explanation.JudgmentL2
- An intern at Ervalis writes in a memo: 'accounting profit, taxable profit, current tax and tax expense are four ways of saying the same thing'. Correct this memo in a few lines.JudgmentL1
- Grenaval has determined current tax of … for the year. Its deferred tax liability, arising from accelerated tax depreciation, increased by …, a change recognised in profit or loss. Compute tax expense for the year.CalculationL2Variant
- At the publisher Solmaris, current tax for the year amounts to …. A warranty provision, deductible only when payments are made, increased the deferred tax asset by …, recognised in profit or loss. What is tax expense for the year?CalculationL2Variant
- Cassevin has current tax of …. Its deferred tax liability increased by … in total, of which … relates to a land revaluation recognised in other comprehensive income (case data); the rest arises from depreciation differences recognised in profit or loss. Compute deferred tax expense in profit or loss and tax expense in profit or loss.CalculationL2
- Myrtelle reports accounting profit of …. Under tax law (case data), the fines recognised, i.e. …, are not deductible, and tax depreciation for the year exceeds accounting depreciation by …. Compute taxable profit.CalculationL1
Tax base of assets and liabilities24 questions
- The tax base of an asset is the amount that will be deductible for tax purposes against the taxable economic benefits the entity will obtain when it recovers the carrying amount of that asset.True / falseL1
- Where the economic benefits that an asset will generate will not be taxable, the tax base of that asset is nil.True / falseL1
- Research costs recognised as an expense under IAS 38, but which tax law allows to be deducted over the following years, have a tax base even though no asset is recognised.True / falseL2
- Revenue received in advance, taxed when received, has a tax base equal to its carrying amount.True / falseL2
- Pernelle holds a trade receivable of 90,000. The related revenue has already been included in its taxable profit, so the collection will not be taxed (case data). What is the tax base of the receivable?Single choiceL1
- Castellane has recognised an accrual of 36,000 for professional fees, which tax law will deduct only when paid, next year (case data). What is the tax base of this liability?Single choiceL2
- Ivrandel has borrowed 500,000 from a bank; under tax law (case data), repaying the principal will have no tax consequences. What is the tax base of the loan?Single choiceL2
- For an unusual asset, Corlanne's tax team cannot directly identify its tax base. What approach does IAS 12 suggest?Single choiceL3
- At the reporting date, which of the following items of Bérondel have a positive tax base even though no asset is recognised? (Tax treatments: case data.)Multiple choiceL2
- Which statements about temporary differences in consolidated financial statements are correct?Multiple choiceL3
- Fauvelle holds an asset whose tax base is not immediately apparent. Which lines of reasoning are consistent with IAS 12?Multiple choiceL3
- Loubreuil acquired a machine for …, a cost recognised by the tax authorities. At the reporting date, tax law has already allowed it to deduct … (case data); the carrying amount of the machine is …. Compute the tax base and the difference between carrying amount and tax base.CalculationL1Variant
- Management software bought for … by the Valquirin cooperative is amortised faster for tax than for accounting: … has already been deducted for tax, while its carrying amount is still … (case data). What are its tax base and the related temporary difference?CalculationL2Variant
- The Ostrivane training centre collected … in December for courses to be held next year; the revenue is recognised as a liability. Tax law (case data) taxes these amounts when received. Compute the tax base of the revenue received in advance and the gap with its carrying amount.CalculationL2Variant
- The magazine publisher Tervaline received … of subscriptions covering next year, recognised as a liability. In its country, tax law (case data) taxes these subscriptions only when the revenue is recognised in profit or loss. What are the tax base of this liability and the temporary difference?CalculationL2Variant
- Hautmarel's accrued expenses amount to … at the reporting date. Under tax law (case data), … will be deductible only on payment; the rest has already been deducted for the year. Compute the tax base of these accrued expenses.CalculationL2
- The Quintaverne laboratory expensed … of research costs under IAS 38. Tax law (case data) spreads their deduction over three years; … was deducted this year. At the reporting date, what are the tax base of these costs and their carrying amount?CalculationL2
- Mérandol has recognised a litigation provision of 70,000, deductible for tax only when paid (case data). In its tax base schedule, the accountant shows a tax base of 70,000 for this provision, 'the amount that will be deducted'. Where is the error?Single choiceL2
- Rivelane has recognised a dividend receivable of 120,000; tax law (case data) fully exempts this dividend. The accountant uses a nil tax base and derives a temporary difference of 120,000. What is the error?Single choiceL2
- For its consolidated financial statements, the Aubrelin group computes the temporary differences on a warehouse of its foreign subsidiary, which is taxed separately (no consolidated return: case data). It uses as tax base the one the warehouse would have under the law of the parent's country. What is the error?Single choiceL3
- The Calvereau group and its three domestic subsidiaries are under a tax consolidation regime: a single consolidated return is filed by the parent (case data). For a machine held by one of the subsidiaries, how is the tax base used in the consolidated financial statements determined?Single choiceL3Variant
- Sorbière has lent 400,000 to a distributor. At the reporting date, it has recognised 24,000 of accrued interest receivable. Under tax law (case data), interest is taxed when received and repayment of the principal has no tax consequences. Which analysis of the tax bases should be adopted?Single choiceL3
- The equipment hirer Brissange has received 15,000 of security deposits from customers, recognised as liabilities and repayable at the end of the contracts. Under tax law (case data), these deposits are neither taxed when received nor deductible when repaid. Which conclusion should be adopted?Single choiceL2
- In the Escandor group, the North subsidiary, which had acquired land for 500,000, sold it for 650,000 to the South subsidiary. Both subsidiaries are taxed separately, with no consolidated return; in South's return, the tax base of the land is 650,000 (case data). On consolidation, the intragroup gain is eliminated. Which temporary difference arises in the consolidated financial statements?Single choiceL3Variant
Current tax: liability, instalments and loss carry-back24 questions
- At the reporting date, the part of current tax for the period that has not yet been paid is recognised as a liability.True / falseL1
- Where the instalments paid for the period exceed current tax for that period, the excess is recognised as an expense.True / falseL1
- The benefit of a tax loss carried back against the tax of a prior period is recognised only when the tax authorities refund the tax.True / falseL2
- Current tax for the period is measured using the tax rates and tax laws enacted or substantively enacted by the end of the reporting period.True / falseL2
- On what amount is the current tax for a period computed?Single choiceL1
- For Lanvérac, the tax rate applicable to profits for the year ended 31 December 20X5 is 28%. In February 20X6, before the financial statements are authorised, Parliament adopts a 25% rate applicable retroactively to 20X5 profits; at 31 December 20X5, this law was neither enacted nor substantively enacted (case data). Which rate should be used for 20X5 current tax?Single choiceL2
- In 20X5, Pradomir incurs a tax loss which the law (case data) allows it to carry back against its 20X4 taxable profit, with a refund of the tax paid. When does it recognise the related asset?Single choiceL2
- Ormessan paid instalments of 210,000 for the year; current tax for the year amounts to 190,000. What does it present at the reporting date in respect of this tax?Single choiceL2
- Tavernol makes an accounting profit of …. Tax law (case data) requires … of non-deductible expenses to be added back and allows … of exempt income to be deducted. The rate enacted at the reporting date is …%. Compute taxable profit and current tax.CalculationL1Variant
- The hotel group Clairmonde (an entity taxed on its own) reports accounting profit of …. It recognised … of non-deductible entertainment costs and … of exempt dividends received (case data). With an enacted rate of …%, what are its taxable profit and current tax?CalculationL2Variant
- Bellefosse's current tax for the year amounts to …; it paid instalments of … during the year. What current tax liability does it present at the reporting date?CalculationL2
- In 20X5, Vauclerc incurs a tax loss of …. Tax law (case data) allows it to carry the loss back against its 20X4 profit, taxed at …%, up to the tax paid for 20X4, i.e. …. What asset does it recognise in its 20X5 financial statements?CalculationL2Variant
- The dairy cooperative Fonsalve records a tax loss of … in 20X5. The legislation (case data) allows a carryback only against 20X4 taxable profit, which amounted to … taxed at …%; the rest of the loss can be carried forward. Compute the carryback asset recognised in 20X5 and the loss still to be carried forward.CalculationL3Variant
- Merisande's taxable profit is …. The rate applicable to profits for the year, enacted at the reporting date, is …%. A bill providing for …% for future years is under discussion, neither enacted nor substantively enacted (case data). Compute current tax for the year.CalculationL2
- The Ravignac foundry paid no instalments; its current tax for the year, computed at the reporting date, amounts to …, payable next year. Record the closing entry.Journal entryL1Variant
- The IT services subsidiary Neuvary, taxed separately, reports taxable profit of …; the rate enacted at the reporting date is …%. No instalments were paid. Recognise current tax for the year.Journal entryL2Variant
- In June, Arvenais pays … to the tax authorities as an instalment on tax for the current year, whose amount will be known only at the reporting date. Record this payment.Journal entryL1
- Javergne incurs a tax loss in 20X5. The law (case data) allows it to carry the loss back and obtain a refund of … of tax paid for 20X4; the claim will be filed in 20X6. Record the entry in the 20X5 financial statements.Journal entryL2Variant
- The logistics subsidiary Ombrevaux, taxed separately, incurs a 20X5 tax loss of …, which can be carried back in full against its 20X4 taxable profit, taxed at …% (law in the case; the tax paid for 20X4 amply covers the refund). The refund will be received in 20X6. Record the 20X5 entry.Journal entryL3Variant
- Dorvignac reports accounting profit of 500,000. Under tax law (case data), 40,000 of expenses are not deductible. With an enacted rate of 25%, the accountant recognises current tax of 125,000. Where is the error?Single choiceL2
- Sermaise incurred a tax loss in 20X5 that can be carried back (law in the case), giving a right to a refund of 64,000, certain in principle and amount. It recognised nothing in 20X5 and recognised income of 64,000 in 20X6, when the refund was received. What is the error?Single choiceL3
- Valdérose is taxed in two countries. In country A, its instalments exceed the tax due by 15,000; in country B, it still owes 40,000. No legally enforceable right allows amounts owed to two different tax authorities to be set off (case data). What does it present at the reporting date?Single choiceL2
- In 20X5, Quercival incurs a tax loss. The law (case data) allows it to carry the loss back to 20X4 (tax refund) or forward; at the reporting date it elects to carry it back, which gives it a right to a refund of a determined amount. The finance director proposes recognising nothing until the authorities agree. Which analysis should be adopted?Single choiceL3
- At the end of 20X5, Antrevel still owes 180,000 of current tax for 20X5. In addition, the final 20X4 return, filed in 20X5, shows additional tax of 10,000 not yet paid. What current tax liability does it present at the end of 20X5?Single choiceL2
Taxable temporary differences and deferred tax liabilities24 questions
- Where the carrying amount of an asset exceeds its tax base, the difference is a taxable temporary difference, and the tax that will be payable on it is a deferred tax liability.True / falseL1
- An entity that revalues land without an equivalent tax adjustment recognises no deferred tax on the difference, provided it does not intend to dispose of the land.True / falseL2
- Where non-monetary assets are measured in the entity's functional currency but taxable profit is determined in another currency, exchange rate changes may give rise to temporary differences resulting in deferred tax.True / falseL2
- Which of these situations at Garbellis gives rise to a taxable temporary difference? (Tax treatments: case data.)Single choiceL1
- A deferred tax liability is recognised for all taxable temporary differences, subject to exceptions. Which ones?Single choiceL1
- Ferrantis capitalises development costs, which are then amortised through profit or loss; tax law (case data) deducted them in full in the year they were incurred. What is the consequence under IAS 12?Single choiceL2
- In a business combination, the Malvenne group measures the identifiable assets acquired at fair value; the legislation (case data) retains their previous tax bases. Which statement is correct?Single choiceL2
- Of the following items of Hélvard (tax data from the case), which give rise to a taxable temporary difference?Multiple choiceL2
- The Thoronde group revalues its owner-occupied buildings under its accounting policy (case data); tax law does not change their tax base. Which statements are correct?Multiple choiceL3
- Under IAS 12, which of these situations may give rise to temporary differences?Multiple choiceL2
- A machine of Peyrolles, depreciated faster for tax than for accounting, has a carrying amount of … and a tax base of …. The rate expected on reversal, enacted at the reporting date, is …%. Compute the taxable temporary difference and the deferred tax liability.CalculationL1Variant
- The haulier Lirvalle uses declining-balance tax depreciation on its truck fleet: at the reporting date, the fleet has a carrying amount of … and a tax base of …. With an expected rate of …% (enacted at the reporting date), what are the temporary difference and the deferred tax liability?CalculationL2Variant
- Cordelan revalues, under its accounting policy (case data), land whose tax base remains equal to its cost, …; the revalued amount is …. Cordelan has no intention of selling the land. With an expected rate of …%, compute the temporary difference and the deferred tax liability.CalculationL2Variant
- After revaluation (the group's accounting policy, case data), the office building occupied by the Vantorel group's head office has a carrying amount of …; the legislation ignores the revaluation and its tax base, after tax depreciation, is …. The group intends to occupy the building indefinitely. With an expected rate of …%, compute the temporary difference and the deferred tax liability.CalculationL3Variant
- Ambrevin has capitalised … of development costs, amortised by … at the reporting date. Tax law (case data) deducted them in full in the year they were incurred. With an expected rate of …%, compute the temporary difference and the deferred tax liability.CalculationL2
- At the end of its first year of activity, Brunelière identifies a taxable temporary difference of … on its equipment, depreciated faster for tax; no deferred tax existed at the start of the year. The expected rate is …%. Record the entry, the difference arising from depreciation recognised in profit or loss.Journal entryL2Variant
- The leasing company Orbecque recognises accrued interest taxed only when received (case data). The related deferred tax liability was … at the start of the year; at the reporting date, the temporary difference reaches …, at the expected rate of …%. Record the change, entirely related to income recognised in profit or loss.Journal entryL2Variant
- Carmaux's machine is reaching the end of its tax depreciation: accounting depreciation now exceeds tax depreciation and the taxable difference is decreasing. The deferred tax liability was … at the start of the year; the temporary difference is only … at the reporting date, at the expected rate of …%. Record the change.Journal entryL2
- Ombrival holds two machines depreciated faster for tax. At the reporting date, the taxable temporary differences are … (machine A) and … (machine B); the expected rate is …% and the deferred tax liability was … at the start of the year. Record the change in profit or loss.Journal entryL2
- A warehouse of Lermantes has a carrying amount of 400,000 and a tax base of 280,000; the expected rate is 25%. The accountant recognises a deferred tax liability of 100,000. What is the error?Single choiceL2
- The Halvignon group revalues a vineyard (the group's accounting policy, case data) from 2,000,000 to 2,600,000; the tax base remains 2,000,000. The controller recognises no deferred tax, writing: 'the estate is strategic, it will never be sold'. What is the error?Single choiceL3
- Pélagrine holds listed shares measured at fair value, 860,000 at the reporting date; their cost, 700,000, remains their tax base and the gain will be taxed only on disposal (case data). Pélagrine intends to hold them for the long term. With an expected rate of 25%, which analysis should be adopted?Single choiceL3
- On acquiring Ternelle, the Sauvigal group recognises a brand in its consolidated financial statements at fair value, 500,000. In Ternelle, taxed separately, the internally created brand has no tax base (case data). The finance director considers that no deferred tax should be recognised, since the transaction 'does not go through profit or loss'. Which analysis should be adopted?Single choiceL3
- At the reporting date, Vellouse has: accrued interest receivable of 16,000, taxed when received; a machine with a carrying amount of 250,000 and a tax base of 210,000 (case data). The expected rate is 25%. What total deferred tax liability does it recognise?Single choiceL2
Deductible temporary differences and deferred tax assets20 questions
- A provision that is deductible for tax only when paid gives rise to a deductible temporary difference, which results in a deferred tax asset to the extent that future taxable profit is probable.True / falseL1
- Every deductible temporary difference gives rise to a deferred tax asset, with no condition other than the existence of the difference.True / falseL2
- Retirement benefit costs recognised as an expense as service is provided, but deductible for tax only when contributions or benefits are paid, give rise to a deductible temporary difference.True / falseL1
- Which of these situations at Ravenelle gives rise to a deductible temporary difference? (Tax treatments: case data.)Single choiceL1
- Gondrecourt has recognised a warranty provision of 80,000, deductible for tax only when repairs are made (case data). What temporary difference results?Single choiceL2
- Under what main condition is a deferred tax asset recognised for a deductible temporary difference?Single choiceL2
- Of the following items of Oustalet (tax treatments: case data), which give rise to a deductible temporary difference?Multiple choiceL2
- Which statements about deferred tax assets arising from deductible differences are correct?Multiple choiceL2
- Vesmarin holds a bond measured at fair value, 60,000 below its cost, which remains its tax base (case data). It intends to hold the bond to maturity. Which statements are correct?Multiple choiceL3
- Castelmure has recognised a warranty provision of …, deductible for tax when repairs are made. Its documented forecasts make sufficient taxable profit probable (case data). The expected rate is …%. Compute the deductible difference and the deferred tax asset.CalculationL2Variant
- The printer Lauzerte has a pension liability of …, built up as service is provided; tax law deducts the costs only when benefits are paid (case data). Sufficient taxable profit is probable. With an expected rate of …%, what are the deductible difference and the deferred tax asset?CalculationL2Variant
- At the reporting date, Montbrisac has a litigation provision of …, deductible when paid, and revenue received in advance of …, taxed when received (case data). Sufficient taxable profit is probable; the expected rate is …%. Compute the total deductible differences and the deferred tax asset.CalculationL2
- The mutual insurer Saint-Vrain holds a bond portfolio measured at fair value, … at the reporting date; its tax base remains cost, … (case data). It intends to hold the securities to maturity, and its forecasts make sufficient taxable profit probable. With an expected rate of …%, compute the deductible difference and the deferred tax asset.CalculationL3
- At the end of its first year, Pradelune identifies a deductible temporary difference of …, arising from provisions recognised in profit or loss and deductible when paid. Sufficient taxable profit is probable; the expected rate is …%. No deferred tax existed at the start of the year. Record the entry.Journal entryL2Variant
- At the distributor Fenestrelle, provisions for returns, deductible when customers are refunded, are increasing. The deferred tax asset was … at the start of the year; the deductible difference reaches … at the reporting date, at the expected rate of …%, sufficient taxable profit remaining probable. Record the change in profit or loss.Journal entryL2Variant
- This year Rocheblave paid a large part of a termination benefit provided for last year; the payment was deducted from its taxable profit. The deferred tax asset was … at the start of the year; the remaining deductible difference is only … at the reporting date, at the expected rate of …%. Record the change.Journal entryL2
- Ferlandine has recognised a restructuring provision of 150,000, deductible when paid next year (case data). Its future taxable profits are considered probable and sufficient. Its deferred tax schedule does not include this provision, on the grounds that 'the liability is certain'. What is the error?Single choiceL2
- The regional bank Vauzelle holds bonds at fair value, 2,300,000 at the reporting date, with a tax base of 2,500,000 (cost). Sufficient taxable profit is probable (case data). The tax manager rules out any temporary difference: 'we will hold these securities to maturity, the loss will disappear'. What is the error?Single choiceL3
- Escoulan holds bonds at fair value, 80,000 below their tax base. Based on management's documented analysis (case data), no taxable profit is probable in the periods in which the loss could be deducted, nor from any other source. Which analysis should be adopted?Single choiceL3
- The sports club Valfrimont collected 48,000 of subscriptions for next year, recognised as a liability; tax law (case data) taxed them on receipt. Sufficient taxable profit is probable. The accountant thinks there is 'nothing to do, as the tax has already been paid'. Which analysis should be adopted?Single choiceL2
Goodwill exception and tax-deductible goodwill16 questions
- Where goodwill arising in a business combination is not tax deductible, the entity recognises a deferred tax liability on the difference between its carrying amount and its nil tax base from initial recognition.True / falseL2
- In 20X6, Calvoria writes down goodwill that is not tax deductible and whose deferred tax liability was not recognised initially. The resulting decrease in the taxable difference gives rise to no deferred tax income.True / falseL2
- The goodwill exception prohibits any deferred tax liability relating to goodwill, including for a taxable difference that arises after the initial recognition of tax-deductible goodwill.True / falseL2
- Why does the standard prohibit recognising the deferred tax liability arising from the initial recognition of goodwill that is not tax deductible?Single choiceL2
- Dorneval acquires a business, giving rise to goodwill of 420,000 that the tax law does not allow to be deducted. Which analysis is correct at the acquisition date?Single choiceL2
- In a business combination, the carrying amount of goodwill is lower than its tax base. What does the standard require?Single choiceL2
- Which of these statements about deferred tax relating to goodwill are correct?Multiple choiceL3
- In Estravia's consolidated financial statements at 31 December 20X5, which situations give rise to the recognition of deferred tax?Multiple choiceL3
- To determine the deferred tax relating to a subsidiary's goodwill at the reporting date, which information is needed?Multiple choiceL3
- On 1 January 20X4, Galdrix recognised goodwill of …, whose tax base was equal to that amount. The tax law (case data) allows it to be deducted at … a year; at 31 December 20X5, … years have been deducted and the carrying amount of goodwill is unchanged. Tax rate: …%. Compute the difference and the deferred tax at the reporting date.CalculationL3Variant
- Helvora group acquired a logistics company … years ago; the goodwill of … was then equal to its tax base. Since then, the tax authority has allowed a deduction of … per year (tax data); no impairment has been recognised. The expected tax rate is …%. Determine the temporary difference and the deferred tax at the reporting date.CalculationL3Variant
- On acquiring a business, Isbrand recognises goodwill of …; under the tax law (case data), its tax base is …. Sufficient taxable profit is probable. Tax rate: …%. Compute the difference and the deferred tax asset.CalculationL3Variant
- Lumivar acquires a network of veterinary clinics and recognises goodwill of …; its tax base is … (tax data). The forecasts used (case assumptions) make it probable that only … of the difference will be used. Tax rate: …%. Compute the difference and the deferred tax asset to be recognised in the combination.CalculationL3Variant
- In the business combination carried out by Marquelle, goodwill computed before deferred tax amounts to 300,000 and is not tax deductible. The accountant recognised a deferred tax liability of 75,000 (25% rate) and increased goodwill to 375,000. Where is the error?Single choiceL3
- Norbrey has held tax-deductible goodwill of 500,000 since 20X2; its tax base, originally equal to its carrying amount, has fallen to 300,000 at 31 December 20X5 as a result of tax amortisation. The goodwill is neither amortised nor impaired in the accounts. The controller recognised no deferred tax, citing the goodwill exception. Where is the error?Single choiceL3
- Pellanor writes down by 120,000 goodwill that is not tax deductible (nil tax base since the outset). The accountant records deferred tax income of 30,000 (25% rate) on the grounds that the taxable difference has decreased. Where is the error?Single choiceL3
Initial recognition exception and equal differences28 questions
- The initial recognition exception may apply to an asset acquired in a business combination.True / falseL2
- At the commencement date of a lease, where the tax law gives rise to equal taxable and deductible differences, the lessee recognises both a deferred tax liability and a deferred tax asset.True / falseL2
- A transaction that changes taxable profit when it occurs may nevertheless fall under the initial recognition exception.True / falseL2
- IAS 12 sets the methods of accounting for government grants and investment tax credits.True / falseL2
- Which combination of conditions allows the initial recognition exception to be applied to a deferred tax liability?Single choiceL2
- A temporary difference arises on the initial recognition of an asset part of whose cost will never be deductible. What does its treatment depend on?Single choiceL2
- Which deferred taxes does the initial recognition exception cover?Single choiceL2
- Which conditions must all be met for the initial recognition exception to apply?Multiple choiceL2
- In which of these situations does the initial recognition exception not apply?Multiple choiceL2
- On 1 January 20X6, Jassora leases a warehouse: right-of-use asset of … and lease liability of …. Under the tax law (case data), lease payments are deductible when paid: the tax bases of the right-of-use asset and of the liability are nil. Sufficient taxable profit is probable. Tax rate: …%. Compute the deferred tax liability and asset at the commencement date.CalculationL2Variant
- Korvelle leases a fleet of commercial vehicles. At the commencement date, it recognises a right-of-use asset of … and a lease liability of …. The tax law (data) deducts only lease payments made, so both items have a nil tax base. Future taxable profit is probable. With a tax rate of …%, which deferred taxes are recognised at the commencement date?CalculationL2Variant
- On 1 July 20X6, Lindrave commences an office lease: right-of-use asset of … and lease liability of …. For tax purposes (case data), lease payments are deductible only when paid; both tax bases are nil and future taxable profit is probable. Tax rate: …%. Record the deferred tax entry at the commencement date.Journal entryL2Variant
- Morvanne brings a telecommunications mast into use; it recognises a dismantling provision of … and includes the same amount in the cost of the mast (treatment used in the case). The tax law (data) deducts dismantling costs only when paid and ignores this component of cost. Future taxable profit is probable. Tax rate: …%. Record the deferred tax entry at the outset.Journal entryL2Variant
- An entity issues a compound financial instrument; in its jurisdiction, the tax base of the liability component equals the total of both components. How does it treat the taxable difference arising from the separation of the equity component?Single choiceL3
- Nestara receives a non-taxable government grant of 90,000 for a machine costing 450,000; under the method used in the case, the grant is deducted from the carrying amount of the machine, but not from its tax base. Which statements are correct at the outset?Multiple choiceL3
- Ostrelle issues convertible bonds for …; the liability component is measured at …, the balance being classified in equity. In its jurisdiction (case data), the tax base of the liability component equals the total issue proceeds. Tax rate: …%. Compute the difference and the deferred tax liability at issue.CalculationL3
- Querval acquires a storage facility for … and initially recognises a dismantling provision of …, included in the cost of the facility (treatment in the case). For tax purposes (data), the purchase price forms the tax base of the facility, the dismantling component is not part of it and the provision is deductible only when paid. Future taxable profit is probable. Tax rate: …%. Compute the liability, the asset and the net deferred tax at the outset.CalculationL3Variant
- Ressane installs a test platform bought for …. It must restore the site at the end of operations: estimated cost of …, provided for and included in the cost of the platform (treatment in the case). The tax law (data) admits neither this component in the tax base nor the provision before payment. Future taxable profit is probable. Tax rate: …%. Compute the deferred taxes at the outset.CalculationL3Variant
- Saltrene issues convertible bonds; the split reveals an equity component of …. In its jurisdiction (case data), the tax base of the liability component equals the total issue proceeds, hence a taxable difference equal to this component. Tax rate: …%. Record the deferred tax entry at issue.Journal entryL3
- At 31 December 20X5, Solvara brings a solar plant into use and recognises a dismantling provision of …, included in the cost of the plant (treatment in the case). The tax law (data) recognises neither this component nor the provision before payment. The current rate is 25%, but an enacted law sets at …% the rate for the years in which the differences will reverse. Future taxable profit is probable. Record the deferred tax entry.Journal entryL3
- Tirenne, lessee of a store lease, recognises at the commencement date a right-of-use asset and a lease liability of 540,000 each. Lease payments are deductible only when paid (tax data). Its accountant recognises no deferred tax, citing the initial recognition exception. Where is the error?Single choiceL3
- Valdoris capitalises 300,000 of development costs (accounting treatment in the case), which the tax law (data) allows it to deduct in full in the same year. Its accountant records no deferred tax, citing the initial recognition exception. Where is the error?Single choiceL3
- Aubrisse buys an office building separately, outside any business combination, for 700,000; under the tax law (data), 200,000 of this cost will never be deductible, either through depreciation or on disposal. The purchase affects no profit. The accountant recognises a deferred tax liability of 50,000 (25% rate) as an expense. Where is the error?Single choiceL3
- Cellaris, a lessee, recognises a right-of-use asset and a lease liability of 210,000 each. In its jurisdiction (case data), the tax authority follows the accounting treatment: it deducts the depreciation of the right-of-use asset and the interest on the liability, so the tax base of each item equals its carrying amount. Which deferred tax is recognised at the commencement date?Single choiceL3
- Dravona separately acquires an operating licence for 650,000. The tax law (data) will never allow 150,000 of this cost to be deducted; the acquisition affects neither accounting profit nor taxable profit, and no deductible difference arises. Tax rate: 25%. Which treatment applies at acquisition?Single choiceL3
- Elmorra, which has recent tax losses, leases a logistics site: right-of-use asset and lease liability of 380,000 each. Lease payments are deductible only when paid (tax data); according to the schedule prepared (case assumption), the taxable difference on the right-of-use asset will reverse in the same periods, and for the same tax authority and entity, as the deductible difference on the liability. Tax rate: 25%. What is recognised at the commencement date?Single choiceL4
- Faldine group enters, on the same day, into two identical leases (right-of-use asset and liability of 500,000 each) in two jurisdictions. In jurisdiction A (case data), lease payments are deductible when paid; in jurisdiction B, the tax authority deducts the depreciation of the right-of-use asset and the interest, so the tax bases equal the carrying amounts. Write a position paper on deferred tax at the commencement date of each lease, distinguishing the rules of the standard, the case data and judgement.JudgmentL4
- During 20X6, Ferrovane carries out three transactions (tax rate: 25%): (1) separate purchase of a licence for 480,000, of which 120,000 will never be deductible, with no effect on profits; (2) issue of convertible bonds showing an equity component of 80,000, the tax base of the liability component being equal to the total proceeds (data); (3) capitalisation of internally developed software for 60,000, fully deducted for tax in the same year (data). Write a note analysing the deferred tax at the outset of each transaction.JudgmentL4
Probable taxable profit and tax planning25 questions
- To support a deferred tax asset, an entity may count the taxable temporary differences of a sister company that is a separate taxable entity.True / falseL2
- When assessing whether future taxable profit is sufficient, the entity considers it excluding the deductions that will result from the reversal of the deductible temporary differences themselves.True / falseL2
- An action that merely causes existing deductible temporary differences to reverse is a tax planning opportunity.True / falseL2
- The estimate of future taxable profit may include the recovery of some assets for more than their carrying amount, if sufficient evidence makes it probable.True / falseL2
- Which taxable temporary differences make probable the taxable profit needed for a deferred tax asset?Single choiceL2
- Without sufficient taxable differences, on what other bases may a deferred tax asset be recognised?Single choiceL2
- To what extent is a deferred tax asset recognised for deductible temporary differences?Single choiceL2
- Arnavelle is assessing its deferred tax asset. Which sources of taxable profit may it take into account?Multiple choiceL2
- In which of these situations is the recovery of an asset for more than its carrying amount least likely to be included in future taxable profit?Single choiceL3
- In Belgrane's jurisdiction (case data), capital losses on securities can be offset only against capital gains of the same kind. Which statements are correct when assessing the deferred tax asset relating to an unrealised capital loss on securities?Multiple choiceL3
- Which statements about tax planning opportunities are correct?Multiple choiceL3
- At 31 December 20X5, Cortessa has deductible temporary differences of …. Its taxable differences, with the same authority and entity, that will reverse in the same periods amount to …. No other source of taxable profit is probable (case assumption). Tax rate: …%. Compute the deferred tax asset recognised and the uncovered deductible difference.CalculationL3Variant
- The subsidiary Delmarre has deductible differences of …. Its own taxable differences, which will reverse in the same periods, amount to …; a sister company, a separate taxable entity with no group tax regime (tax data), has taxable differences of …. No other source is probable. Tax rate: …%. Compute Delmarre's deferred tax asset and the uncovered difference.CalculationL3Variant
- Elvarine has deductible differences of …, which will reverse between 20X6 and 20X8; it has no taxable differences. Its tax budgets (case assumptions) forecast for these three years cumulative taxable profit of …, computed after deducting these reversals. Tax rate: …%. Compute the taxable profit to be compared with the differences and the deferred tax asset.CalculationL3Variant
- Faronde has deductible differences of …. Taxable differences of … (same authority, same entity) will reverse in the same periods. Its probable future taxable profit, excluding reversal deductions and taxable reversals, is estimated at … (case assumption). Tax rate: …%. Compute the available profit and the deferred tax asset.CalculationL3Variant
- Grisolde holds a financial investment whose future disposal will generate a capital loss for tax; the related deductible difference is …. Its tax law (case data) offsets such losses only against capital gains; probable future capital gains are estimated at …, while its operating profits are more than sufficient. Tax rate: …%. Compute the deferred tax asset on this difference and the uncovered part.CalculationL3
- Harmont has 400,000 of deductible differences; its tax budget forecasts taxable profit of 250,000 after deducting these reversals (case assumption). It caps the deferred tax asset at 250,000 × 25% = 62,500. Where is the error?Single choiceL3
- Ilvaren, taxed in France, supports a deferred tax asset of 75,000 with the taxable differences of 300,000 of its subsidiary taxed in Italy, which will reverse in the same periods. Ilvaren has no other source of taxable profit. Where is the error?Single choiceL3
- Jarvelle supports a deferred tax asset with a 'tax planning opportunity': in 20X6, it will pay the termination benefits provided for, which will make the related provision deductible. No other action is planned. Where is the error?Single choiceL3
- Kerlanvel has a deductible difference of 240,000 on listed securities, the loss on which, under its tax law (case data), can be offset only against gains on disposals of securities. No gain is expected within the carry-forward period; its future operating profits are very high. Tax rate: 25%. What is recognised for this difference?Single choiceL3Variant
- In Lormian's jurisdiction (case data), financial losses can be offset only against financial income. Lormian has a deductible difference of a financial nature of 200,000 and probably expects 80,000 of taxable financial income within the carry-forward period. Tax rate: 25%. Which deferred tax asset is recognised on this difference?Single choiceL3Variant
- Morlaine has 500,000 of deductible differences. Its future taxable profit, excluding reversal deductions, is estimated at 300,000. It holds a building measured at cost (carrying amount equal to tax base, 1,000,000), used in a profitable business; three consistent appraisals put its disposal value at 1,400,000, and management documents probable recovery at that amount. What may it take into account for the deferred tax asset (rate: 25%)?Single choiceL3
- Nervalle has 800,000 of deductible differences and probable future taxable profit of 200,000 (excluding reversal deductions). Management presents two actions: (1) transferring to Nervalle, by a decision already approved by the board, the profitable maintenance business of a sister company, which would generate 350,000 of taxable profit in Nervalle during the reversal period; (2) settling in 20X6 accrued expenses already provided for, of 250,000. Tax rate: 25%. Which deferred tax asset is best supported?Single choiceL4
- Quillardine has 600,000 of deductible differences at 31 December 20X5 (rate: 25%). Evidence gathered: 300,000 of taxable differences of the same entity reversing in the same periods; a tax budget forecasting 200,000 of taxable profit after deducting the reversals; a hoped-for gain on a plant impaired last year; and the reversal of a provision presented by management as 'tax planning'. Write the note supporting the amount of deferred tax asset to be recognised.JudgmentL4
- Pradeline group comprises two separately taxed companies (rate: 25% in both countries, no group regime). A has 400,000 of deductible differences, 160,000 of own taxable differences reversing in the same periods and no probable future profit. B has 200,000 of taxable differences, but also a deductible difference of 150,000 on securities whose loss can be offset only against capital gains (data); 60,000 of gains are probable. The CFO proposes recognising the full amount at group level. Write a position paper.JudgmentL4
Unused tax losses and tax credits26 questions
- A deferred tax asset is recognised for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available against which they can be used.True / falseL2
- The existence of unused tax losses is strong evidence that future taxable profit may not be available.True / falseL2
- An entity that has incurred tax losses in each of the last three years may recognise a deferred tax asset on those losses solely on the basis of a budget forecasting a return to profit.True / falseL2
- Only tax losses carried forward can give rise to a deferred tax asset; unused tax credits are excluded.True / falseL2
- An entity has a history of recent losses. To what extent does it recognise a deferred tax asset on its losses carried forward?Single choiceL2
- When assessing the asset on time-limited losses, which taxable temporary differences does the entity take into account?Single choiceL2
- Saulvane has … of tax losses carried forward. According to the forecasts used (case assumptions, judged probable), its taxable profit before these losses expire will reach …. Tax rate: …%. Compute the usable losses and the deferred tax asset.CalculationL2Variant
- Tavernique has … of tax losses carried forward. Its forecasts, documented and judged probable (case assumptions), show … of taxable profit within the carry-forward period. Expected tax rate: …%. Which deferred tax asset is recognised?CalculationL2Variant
- At 31 December 20X5, Valmorance has … of tax losses carried forward, fully usable according to forecasts judged probable (case assumption). Tax rate: …%. Record the entry recognising the deferred tax asset.Journal entryL2Variant
- Wardane has … of tax losses carried forward, of which only … will probably be used against future profits (case assumptions). Tax rate: …%. Record the deferred tax entry at the reporting date.Journal entryL2Variant
- Yverdal carries a deferred tax asset of … on its tax losses carried forward. At the reporting date, the loss of a major customer reduces the losses that are probably usable to … (case assumption). Tax rate: …%. Record the closing entry.Journal entryL2
- Arvidonne recognises an asset for only part of its tax losses carried forward. What information must its notes give on the losses not recognised?Single choiceL3
- In which case must the entity disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition?Single choiceL3
- After three loss-making years, Bellirane wants to recognise an asset for its losses carried forward. Which elements can support the asset?Multiple choiceL3
- Cadranne incurred a tax loss in 20X5 and recognises a deferred tax asset on part of its losses. Which information must its notes contain?Multiple choiceL3
- Which elements determine the amount of usable losses carried forward used for the deferred tax asset?Multiple choiceL3
- Dunevaux has … of losses carried forward, which will expire at the end of 20X8 (tax data). Its taxable differences with the same authority and entity will reverse by … before that date and by … afterwards. It also expects … of probable taxable profit before expiry (case assumption). Tax rate: …%. Compute the usable losses and the deferred tax asset.CalculationL3Variant
- The subsidiary Escarvelle has … of losses, which may be carried forward for five years under its tax law (data). Within that period, … of taxable differences (same authority, same entity) will reverse; … will reverse later. Probable taxable profit within the period is …. Tax rate: …%. Compute the usable losses and the asset.CalculationL3Variant
- Fontagne has an unused research tax credit of …, which can be offset against tax payable in subsequent years before it expires (tax data). Its probable taxable profit before that date is … (case assumption). Tax rate: …%. Compute the deferred tax asset and the credit not recognised.CalculationL3
- Garvenne has recorded tax losses over the last three years; it has … of losses carried forward. Its taxable differences with the same authority and entity, which will reverse before expiry, amount to …. Its budget forecasts a strong recovery, but management concludes, after a documented analysis (judgement in the case), that it is not convincing evidence. Tax rate: …%. Compute the asset and the losses to be disclosed with no asset.CalculationL3
- Hautbrise has four years of tax losses (1,400,000 carried forward with no time limit, data). It has no taxable differences. A new strategic plan, not yet under way, forecasts profits from 20X7; no contract or structural change supports it. Management wishes to recognise 350,000 (25% rate). What do you conclude?Single choiceL3
- Isquerelle has 500,000 of losses carried forward: 200,000 expire at the end of 20X6, the balance at the end of 20X9 (tax data). Its probable taxable profit is nil in 20X6 and will reach 400,000 over 20X7-20X9 (case assumptions). It has no taxable differences. Tax rate: 25%. Which deferred tax asset is recognised?Single choiceL3
- Jouvenelle incurred a tax loss in 20X5; it recognises an asset for 300,000 of its 1,100,000 of losses carried forward, based on future profits exceeding the reversals of taxable differences. Its tax note shows only the amount of the deferred tax asset. What is missing at a minimum?Single choiceL3
- Kervalan is emerging from three loss-making years and has 1,200,000 of losses carried forward (five-year period, data). Documented evidence: 200,000 of taxable differences reversing within the period; signed firm contracts that will generate 500,000 of taxable profit within the period; an uncontracted budget adding 700,000. Management and the auditor judge the contracts convincing, but not the budget (judgement in the case). Tax rate: 25%. Which asset is recognised?Single choiceL4
- The subsidiary Lantorre lost money in 20X4 and 20X5; it has 2,000,000 of losses that may be carried forward for four years (data). It has 400,000 of taxable differences, of which 250,000 will reverse within the period. In December 20X5 it signed a three-year supply agreement with a distributor and launched a cost-reduction plan that is not yet complete. Tax rate: 25%. Write the position paper on the deferred tax asset and the disclosures.JudgmentL4
- Mirabeline incurred a tax loss in 20X5. At 31 December 20X5, it has 600,000 of losses carried forward, of which 200,000 expire at the end of 20X6 with no taxable profit expected by then, and an unused tax credit of 60,000. Its documented forecasts (case assumptions, judged convincing) make probable taxable profit of 560,000 over 20X7-20X9. Under its tax law (data), losses are offset against profit before the credit, which is itself offset against tax payable. Tax rate: 25%. Write the note: amounts recognised and disclosures.JudgmentL4
Reassessment of deferred tax assets16 questions
- At each reporting date, the entity reassesses the deferred tax assets it had not recognised.True / falseL2
- A reduction in the carrying amount of a deferred tax asset is final: it cannot be reversed later.True / falseL2
- Where a business combination makes recoverable a previously unrecognised deferred tax asset of the acquirer, the change is included in the accounting for the combination and reduces goodwill.True / falseL2
- When must the carrying amount of a deferred tax asset already recognised be reduced?Single choiceL2
- Ambrelle had not recognised an asset for its tax losses. This year, it signed profitable contracts that make probable taxable profit covering part of these losses. What does it do at the reporting date?Single choiceL2
- Brisvane carries a deferred tax asset of …. At the reporting date, the closure of a plant reduces expected taxable profits: only an asset of … remains probably recoverable (case assumption). Compute the reduction and the asset at the reporting date.CalculationL2Variant
- At Corlavine, the deferred tax asset amounted to …. The revision of the budgets (case assumptions) brings the probably recoverable asset down to …. Compute the reduction and the closing balance.CalculationL2Variant
- Dorsane had recognised no asset on its losses carried forward. At 31 December 20X6, its lasting return to profit makes it probable that … of these losses will be used (case assumption). Tax rate: …%. Record the closing entry.Journal entryL2Variant
- Last year, Estoubrane reduced its deferred tax asset by …. This year, new contracts make it probable again that … of that reduction will be recovered (case assumption). Record the entry at the reporting date.Journal entryL2Variant
- Fréjac, which had not recognised an asset for its losses, acquires a business whose future profits, under the tax law of the case, will be able to absorb those losses. How does it account for the deferred tax asset that has become recoverable?Single choiceL3
- At the end of 20X5, Gimelane carries a deferred tax asset on all of its … of losses carried forward. At the end of 20X6, only … are probably usable; at the end of 20X7, after a recovery, … become so (case assumptions; losses not used in the meantime). Tax rate: …%. Compute the 20X6 reduction and the 20X7 reversal.CalculationL3
- Hérisvane had recognised no asset on … of deductible differences and … of losses carried forward. At the reporting date, winning a multi-year contract makes probable taxable profit of … (excluding reversal deductions) within the relevant periods (case assumption). Tax rate: …%. Compute the asset to be recognised and the amount still with no asset.CalculationL3
- On 1 October 20X6, Isarde absorbs a profitable business; under the tax law of the case, the future profits of the combined entity will be able to absorb … of Isarde's losses, which had not been recognised. Tax rate: …%. Record the entry for Isarde's deferred tax asset.Journal entryL3
- Jalavoux carries a deferred tax asset of … on deductible differences, still covered by reversals of taxable differences (data), and of … on losses carried forward. The loss of a contract leaves only …% of the asset on losses probably recoverable (case assumption). Record the closing entry.Journal entryL3
- Kerdouvan did not recognise an asset for 900,000 of losses carried forward in 20X2. Since then, it has made taxable profit every year, signed multi-year contracts and its documented forecasts cover 600,000 of remaining losses. Its accountant keeps recognising no asset 'for consistency with 20X2'. What do you conclude (25% rate)?Single choiceL3
- In 20X5, Lescurane reduced its deferred tax asset from 200,000 to 50,000. In 20X6, evidence makes it probable again that an asset of 170,000 will be recovered (case assumption). The CFO considers the 20X5 reduction 'final'. What is recognised in 20X6?Single choiceL3
Temporary differences on investments20 questions
- The deferred tax liability relating to an investment in a subsidiary is not recognised only if the parent can control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.True / falseL3
- As long as the parent can control the timing of reversal, no deferred tax liability is recognised on its investment, even if it has decided to have the subsidiary distribute its reserves next year.True / falseL3
- A deferred tax asset relating to an investment is recognised only to the extent that it is probable that the deductible difference will reverse in the foreseeable future and that taxable profit will be available against which it can be used.True / falseL3
- When does a temporary difference associated with an investment in a subsidiary, branch, associate or joint arrangement arise?Single choiceL3
- Brunevale holds 30% of an associate; on the facts of the case, no agreement allows it to control the associate's distribution policy, and therefore the timing of reversal of the taxable difference associated with its investment. What does it recognise?Single choiceL3
- A parent has recognised no deferred tax liability on its investments, the conditions of the exception being met. What information must it disclose?Single choiceL3
- In which of these situations is the deferred tax liability relating to the investment not recognised?Multiple choiceL3
- Which statements about disclosures on differences associated with investments are correct?Multiple choiceL3
- In Castelvane's consolidated financial statements, the investment in its subsidiary has a carrying amount of … and a tax base of …; the gap comes from undistributed profits. Castelvane controls the timing of reversal; it has decided on a distribution of … next year and plans nothing else in the foreseeable future. Under the tax law (data), the dividend received is taxed at …%. Compute the difference, the deferred tax liability and the difference remaining with no liability.CalculationL3Variant
- Dalvine group holds an industrial subsidiary: consolidated carrying amount of the investment …, tax base …, the gap coming from profits retained in reserves. The parent, which controls distributions, has decided to bring up … and to leave the rest reinvested indefinitely. The dividend will be taxed at …% in the parent (data). Compute the difference, the deferred tax liability and the difference with no liability.CalculationL3Variant
- Esparvel holds 25% of an associate: carrying amount of the investment …, tax base …. On the facts of the case, Esparvel cannot control the associate's distribution policy; it expects to recover the gap as dividends, taxed at …% (data). Compute the difference and the deferred tax liability.CalculationL3
- At 31 December 20X6, Fayardine, which controls its subsidiary, decides that it will pay it a dividend of … in 20X7 out of profits already included in consolidated profit; the dividend will be taxed at …% in Fayardine (data). No liability had been recognised until then. Record the entry in the consolidated financial statements.Journal entryL3Variant
- Gréolane holds an associate whose distributions it cannot control (facts of the case). This year, its share of profit, recognised in profit or loss, increases the taxable difference associated with its investment by …; recovery is expected through dividends, taxed at …% (data). Record the deferred tax entry.Journal entryL3Variant
- Hyvrelle controls a foreign subsidiary whose investment shows a taxable difference of 900,000. In November 20X6, its board approves the repatriation of 400,000 of reserves in 20X7 to fund an investment; the rest remains reinvested indefinitely. The dividend will be taxed at 5% (data). What is recognised at 31 December 20X6?Single choiceL3
- Istrane holds 35% of Jonquelle, an associate. No agreement provides that Jonquelle' profits will not be distributed; distribution decisions rest with the majority shareholder (facts of the case). Istrane' accountant recognises no deferred tax on the taxable difference of 300,000, 'Istrane having no intention to sell'. What do you conclude?Single choiceL3
- Laurisse has decided to sell its distribution subsidiary in the first half of 20X7; in the consolidated financial statements, the investment has a carrying amount of … for a tax base of …. The capital loss will be deductible at …% (data) and Laurisse has sufficient taxable profit to use it (case assumption). Compute the difference and the deferred tax asset at 31 December 20X6.CalculationL4
- Mazelane controls three subsidiaries and the timing of reversal for each. A: taxable difference of …, profits reinvested indefinitely. B: taxable difference of …, sale decided for 20X7. C: deductible difference of …, no foreseeable sale or liquidation. Gains and losses are taxed at …% (data); taxable profit is sufficient. Compute the liability, the asset and the amount of taxable differences to be disclosed with no liability.CalculationL4
- On 15 December 20X6, Novessa signs the sale, to be completed in March 20X7, of its investment in a loss-making subsidiary; the deductible difference associated with the investment, which comes from losses recognised in profit or loss, is …. The capital loss will be deductible at …% and taxable profit is sufficient (case data and assumptions). Record the entry at 31 December 20X6.Journal entryL4
- Orgevane group controls its subsidiaries and reinvests their profits on a lasting basis: their aggregate taxable differences reach 6,400,000 and no distribution is foreseeable. Calculating the latent tax would be very complex (multiple dividend regimes). Management proposes to recognise nothing and disclose nothing. Which position should be adopted?Single choiceL4
- Puylarde group analyses three investments at 31 December 20X6 (case data). P, a controlled subsidiary: taxable difference of 1,500,000, of which 300,000 will be repatriated in 20X7 by board decision (dividend taxed at 10%). Q, an associate whose distributions the group does not control: taxable difference of 500,000, recovery expected through dividends taxed at 10%. R, a controlled subsidiary: deductible difference of 200,000, no foreseeable sale. Write the position paper: recognition and disclosure.JudgmentL4
Enacted or substantively enacted rates27 questions
- The current tax liability for the period is measured at the amount the entity expects to pay, applying the tax rates and tax laws enacted or substantively enacted by the reporting date.True / falseL1
- A deferred tax liability is always measured at the tax rate of the current period, even if a law enacted before the reporting date sets another rate for the year in which the difference will reverse.True / falseL1
- A tax rate merely announced by the government can never be used to measure tax assets and liabilities: only the official publication of the law counts.True / falseL1
- Velmoriac's reporting date is 31 December 20X5. A law lowering the tax rate from 20X6 is enacted on 20 January 20X6, before the financial statements are authorised for issue; it was neither enacted nor substantively enacted at 31 December. Velmoriac must measure its deferred tax liability at 31 December 20X5 at the new rate.True / falseL2
- Which rate is used to measure a deferred tax liability?Single choiceL1
- How is the current tax liability for a period already ended, for which the tax return has not yet been filed, measured?Single choiceL1
- In Marquenne's jurisdiction, the tax rate depends on the level of taxable profit (graduated rate scale). Which rate does it apply to its temporary differences?Single choiceL2
- In Tessavel's jurisdiction, retained profits are taxed at a higher rate than distributed profits. At the reporting date, no dividend is recognised as a liability. Which rate does Tessavel use for its current and deferred tax?Single choiceL2
- Corbrival has a taxable temporary difference that will reverse half in 20X6 and half in 20X7. The law enacted before the reporting date sets the rate at 27% in 20X6 and then at 25% from 20X7. How does it measure the deferred tax liability?Single choiceL2
- Which of the following statements about the tax rates to be used are correct?Multiple choiceL2
- Lunoria is determining the rate applicable to its temporary differences. Which factors must it take into account?Multiple choiceL2
- At the reporting date of 31 December 20X5, in which of the following situations may Drevanne measure its deferred tax at a new rate? (The facts on the legislative procedure are case data.)Multiple choiceL2
- At 31 December 20X5, Aubriset has a taxable temporary difference of …, arising from accelerated tax depreciation, which will reverse in full in 20X6. The 20X5 rate is …%; a law enacted in October 20X5 sets the rate at …% from 20X6. Compute the deferred tax liability at 31 December 20X5.CalculationL2Variant
- Tauvrelle has capitalised development costs of …, deducted for tax purposes when incurred (tax data of the case); they will be amortised in the accounts by thirds in 20X6, 20X7 and 20X8. A law enacted in 20X5 provides for a gradual rate cut: …% in 20X6, …% in 20X7 and …% in 20X8. Compute the deferred tax liability at 31 December 20X5.CalculationL3Variant
- Sivrance carries a deferred tax liability computed at …% on a taxable temporary difference of …, arising from accelerated tax depreciation recognised in profit or loss. In November 20X5, an enacted law sets the rate applicable on reversal at …%. The difference is unchanged at 31 December 20X5. Compute the liability at the reporting date and the deferred tax income from the rate change.CalculationL2Variant
- Pellonde has deductible temporary differences (provisions deductible when paid, recognised in profit or loss) of … at the start of the year, for which a deferred tax asset is recognised at …%. A law enacted in 20X5 raises the rate applicable on reversal to …%. At the reporting date, the differences amount to …; the asset remains fully recoverable. Compute the asset at the reporting date and the part of its change due to the rate change alone, measured on the opening differences (breakdown convention of the case).CalculationL3Variant
- Trazmont is taxed under a graduated scale (case data): 15% up to 200,000 of taxable profit, 25% from 200,000 to 600,000 and 30% above. Its expected taxable profit for the year of reversal is …. It has a taxable temporary difference of … that will reverse in that year. Compute the expected average rate and the deferred tax liability.CalculationL3Variant
- Halverine is subject to a graduated scale (case data): 10% up to 100,000 of taxable profit, 20% from 100,000 to 300,000 and 28% above. It has a deductible temporary difference of … that will reverse next year, for which it expects taxable profit of …; the asset is recoverable. Compute the expected average rate and the deferred tax asset.CalculationL3Variant
- Norvalis carries a deferred tax liability at …% on a taxable difference of …, arising from accelerated tax depreciation. A law enacted in December 20X5 sets the rate applicable on reversal at …%. The difference is unchanged. Record the entry at 31 December 20X5.Journal entryL2
- Bremoise recognises a fully recoverable deferred tax asset at …% on deductible differences of … (accrued expenses recognised in profit or loss, deductible when paid). A law enacted before the reporting date raises the rate applicable on reversal to …%. Record the adjusting entry at the reporting date.Journal entryL2
- For 20X5, Ferrolde has taxable profit of …, taxed at …%. A taxable temporary difference of … arose in 20X5 (accelerated tax depreciation) and will reverse in 20X6, for which a law enacted in 20X5 sets the rate at …%. No tax has been paid. Record the current and deferred tax entries at 31 December 20X5.Journal entryL3
- Glanvire has a taxable difference of 500,000. The rate enacted for the year of reversal is 26%. The leading candidate in next year's election promises to bring it down to 20%; no bill has been tabled. The accountant measured the deferred tax liability at 100,000 (500,000 × 20%). Where is the error?Single choiceL3
- Ruvenac has deductible differences of 240,000 that will reverse in 20X7. The rate is 30% in 20X5; a law enacted in 20X5 sets it at 32% from 20X7. The recoverable deferred tax asset was recognised at 72,000. Where is the error?Single choiceL3
- Saltiere operates in a jurisdiction where, according to the case data, the rates announced by the government when presenting the budget are binding in practice: the parliamentary vote, held several months later, has never changed an announced rate. On 15 November 20X5, the government announces a rate cut from 28% to 24% from 20X6. Which rate does Saltiere use at 31 December 20X5 for its differences reversing from 20X6?Single choiceL3Variant
- At 31 December 20X5, a bill raising the rate from 25% to 29% is at first reading in the parliament of Vendrasse's jurisdiction. According to the case data, the opposition has tabled amendments on the rate, the final vote is scheduled for May 20X6 and, in this jurisdiction, only that vote makes the rate applicable. Vendrasse has deductible differences for which the deferred tax asset is recoverable. Which rate does it use?Single choiceL3Variant
- Zephalon's reporting date is 31 March 20X6. A law cutting the rate from 30% to 27% for financial years beginning on or after 1 April 20X6 is debated throughout the winter; according to the case data, the rate was neither enacted nor substantively enacted at 31 March 20X6 and the law is finally enacted on 10 May 20X6, before the financial statements are authorised for issue. Which rate does Zephalon use for its taxable differences at 31 March 20X6?Single choiceL3Variant
- As long as the amount of the temporary differences does not change, the enactment of a new tax rate has no effect on the deferred tax assets and liabilities recognised.True / falseL2
Expected manner of recovery or settlement18 questions
- The measurement of deferred tax assets and liabilities reflects the tax consequences of the manner in which the entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.True / falseL2
- For an investment property measured using the fair value model, the presumption that its carrying amount will be recovered through sale is irrebuttable.True / falseL2
- In Arvelune's jurisdiction, the disposal of an asset is taxed at a rate and on a base that differ from those that apply to its use. How does Arvelune measure the deferred tax on this asset?Single choiceL2
- Borlance measures land (a non-depreciable asset) using the IAS 16 revaluation model. Which tax consequences does its deferred tax reflect?Single choiceL2
- When is the presumption that an investment property measured at fair value will be recovered through sale rebutted?Single choiceL2
- Under the legislation in the case, Cassiver would be taxed differently depending on whether it uses or disposes of a warehouse. Which deferred tax parameters may depend on the expected manner of recovery?Multiple choiceL2
- Dumovelle holds a press with a carrying amount of …. Under the legislation in the case, if it is used, its tax base is … and the income is taxed at …%; if it is sold, the tax base (indexed cost) is … and the gain is taxed at …%. At the reporting date, Dumovelle expects to use the press until the end of its useful life. Compute the deferred tax liability to be recognised, then the one that would have resulted from an expected sale.CalculationL3
- Estrabel revalues the land of its head office to … under the IAS 16 revaluation model; its tax base, equal to its cost, is …. Under the legislation in the case, operating profits are taxed at …% and gains on disposal of real estate at …%. Estrabel has no intention of selling. Compute the deferred tax liability.CalculationL3Variant
- Fennoric operates a vineyard whose bare land, which is not depreciable, is measured under the IAS 16 revaluation model at …; the tax base recognised on disposal is …. Under the legislation in the case, tax is …% on operating income and …% on gains on land. Compute the deferred tax liability relating to the land.CalculationL3Variant
- Gorsalis measures an office building let to third parties under the IAS 40 fair value model: … at the reporting date. Under the legislation in the case, rents are taxed at …% and a disposal is taxed at …% on the difference between the price and a tax base of …. Nothing allows the sale presumption to be rebutted. Compute the deferred tax liability.CalculationL3Variant
- Heliodane holds a logistics warehouse classified as investment property and measured at fair value (… at the reporting date). Management says it wants to 'keep it for a long time' and mainly expects a capital gain from it; no business model of consuming substantially all of its benefits over time is documented (case data). On disposal, the tax base would be … and the rate …%. Compute the deferred tax liability.CalculationL3Variant
- Ivranne revalued land under IAS 16, giving rise to a taxable difference of 400,000. Under the legislation in the case, operating income is taxed at 28% and gains on land at 15%. The accountant recognised a deferred tax liability of 112,000, on the ground that the land is used in operations. What is the error?Single choiceL3
- Jasmolde holds bare land let as a car park, classified as investment property and measured at fair value. It measured deferred tax under the rules for taxing rents, rebutting the sale presumption on the ground that it has 'no intention of disposing of the land'. What is the error?Single choiceL3
- Korvelin holds a data centre as investment property measured at fair value; the building is depreciated for tax purposes and has a useful life of twenty years (case data). Its business model, documented by the board, is to let the building under successive leases until the end of its useful life and then demolish it; no sale is contemplated. How does Korvelin measure the deferred tax on the building?Single choiceL3
- Until now, Lormeval measured the deferred tax on a production line under the rules for its use. In December 20X5, the board approves its sale to a competitor, signed in February 20X6; at the reporting date of 31 December 20X5, sale is the expected manner of recovery. Under the legislation in the case, a disposal is taxed at a different rate and on a different base from use. What does Lormeval do at 31 December 20X5?Single choiceL3
- The property company Mirvolle measures three investment properties at fair value: (1) bare land let as a car park; (2) a recent office building that management 'intends to keep' with no documented plan; (3) a warehouse depreciated for tax purposes, let under successive leases until its planned demolition, under a plan approved by the board. Write the memo justifying, property by property, whether the sale presumption is maintained or rebutted, and the supporting evidence to keep.JudgmentL4
- Nivalde uses an industrial building that, under a plan approved at the reporting date, it expects to operate for four more years and then sell. Under the legislation in the case, the tax depreciation claimed during use reduces the tax base and the gain on disposal is taxed at a reduced rate. Write the memo justifying the method for measuring the deferred tax on the building and listing the data needed.JudgmentL4
- The Ostrevane group holds land revalued under IAS 16 and an investment property measured at fair value under IAS 40; the legislation in the case taxes use and disposal differently. Which statements on the measurement of deferred tax are correct?Multiple choiceL3
No discounting9 questions
- Deferred tax assets and liabilities are not discounted.True / falseL1
- An entity with a reliable schedule of reversal of its temporary differences may choose to discount its deferred tax liabilities.True / falseL1
- The amount of a temporary difference is determined from the carrying amount of the asset or liability concerned, not from a discounted estimate of future tax cash flows.True / falseL2
- Orvalde has a taxable temporary difference that will only reverse in fifteen years. How is the related deferred tax liability measured?Single choiceL1
- What justification does the standard give for not discounting deferred tax?Single choiceL1
- Plemara computes a deferred tax liability of 200,000 on a taxable difference that will reverse in ten years. Its finance director proposes discounting it at 5% a year, giving about 122,783. What amount does Plemara recognise?Single choiceL2Variant
- Brasquine has deductible differences giving a recoverable deferred tax asset of 90,000, which will reverse in six years. Its internal auditor suggests discounting it at 4%, giving about 71,128, 'for consistency with provisions'. What asset does Brasquine recognise?Single choiceL2Variant
- In Quervane's financial statements, the deferred tax liability relating to accelerated tax depreciation (360,000 of expected tax, reversing over twelve years) is shown at 241,000, an amount discounted at the group's borrowing rate. Where is the error?Single choiceL2
- Ursenac's accounting policy note states: 'Deferred taxes expected to reverse after more than five years are discounted when a reliable schedule is available; the others are not.' What is the problem?Single choiceL2
Tax recognised in profit or loss21 questions
- Deferred tax is recognised as income or an expense in profit or loss for the period, except to the extent that it arises from a transaction or event recognised outside profit or loss or from a business combination.True / falseL1
- The tax expense presented in profit or loss is limited to the current tax of the period.True / falseL1
- The deferred tax liability recognised in a business combination on acquired assets remeasured to fair value is charged to deferred tax expense in the acquirer's profit or loss.True / falseL2
- Xantrel claims accelerated tax depreciation on its machines, which are depreciated on a straight-line basis in the accounts; its deferred tax liability increases by 18,000 over the year. Where is this increase recognised?Single choiceL1
- Which of the following deferred tax movements of Amberlac is not part of the deferred tax expense in profit or loss?Single choiceL2
- For the year, Belvize recognises current tax of 300,000, deferred tax expense of 40,000 arising from items in profit or loss and a deferred tax liability of 25,000 on a revaluation recognised in other comprehensive income. What tax expense does it present in profit or loss?Single choiceL2
- Cendrolle's deferred tax liability moves from … at the start of the year to … at the reporting date. During the year, … of this increase is the tax on a building revaluation recognised in other comprehensive income. Compute the deferred tax expense in profit or loss.CalculationL2Variant
- Ermitane has an opening deferred tax liability of … and an opening asset of …; at the reporting date, … and …. During the year, it issued a convertible loan: a deferred tax liability of … was charged directly to the equity component. Compute the deferred tax income in profit or loss.CalculationL2Variant
- In the Folgare group's consolidated financial statements, the net deferred tax liability moves from … to …. During the year, the group acquired a subsidiary in a business combination that gave rise to a deferred tax liability of …, and recognised … of deferred tax on a revaluation in other comprehensive income. Compute the deferred tax expense in consolidated profit or loss.CalculationL3Variant
- Gavrance has taxable profit of …, taxed at the enacted rate of …%. During the year, its deferred tax liability increases by … and its deferred tax asset by …, both movements arising from items recognised in profit or loss. Compute current tax and the total tax expense in profit or loss.CalculationL2
- Hastrane, whose temporary differences all arise from items in profit or loss, has taxable differences of … at the start of the year and … at the reporting date, and deductible differences of … and …. The rate, unchanged, is …%; the deferred tax assets are recoverable. Compute the deferred tax expense for the year.CalculationL3
- At the reporting date, Isolvane's deferred tax liability arising from accelerated tax depreciation must increase by …. Record the entry.Journal entryL1Variant
- Jorvelle deducted for tax purposes, when incurred, development costs capitalised in the accounts (tax data of the case). In 20X6, their amortisation in the accounts reduces the taxable difference by …; the rate is …%. Record the deferred tax entry for 20X6.Journal entryL2Variant
- Kastrel recognises as an expense a warranty provision of …, deductible for tax purposes when paid (tax data of the case). The rate is …% and Kastrel will have sufficient taxable profits. Record the deferred tax entry.Journal entryL2
- Mazelvane owes … of current tax, not yet paid. Its deferred tax movements, all arising from items in profit or loss, are an increase in the liability of … and a decrease in the asset of …. Record the tax entries at the reporting date.Journal entryL2
- Nectaval's deferred tax liability increased by 70,000: 40,000 from accelerated tax depreciation and 30,000 from a land revaluation recognised in other comprehensive income. The accountant recorded a single entry: deferred tax expense 70,000 / deferred tax liability 70,000. Where is the error?Single choiceL2
- The Quintaris group's net deferred tax liability increases by 90,000 over the year. The increase includes 50,000 arising from the acquisition of a subsidiary (business combination) and 10,000 of tax on actuarial gains and losses recognised in other comprehensive income (accounting treatment given by the case). The rest arises from items in profit or loss. What deferred tax expense does the group present in profit or loss?Single choiceL3
- Sorbanel writes down a production line measured at cost by 160,000; the loss is recognised in profit or loss. Under the legislation in the case, the loss will only be deductible on disposal, which creates a deductible temporary difference. The rate is 25% and sufficient taxable profits are expected. What deferred tax effect does Sorbanel recognise?Single choiceL3
- Ondravel reduces, for lack of sufficient future taxable profits, the deferred tax asset relating to provisions recognised in profit or loss; the deductible differences are unchanged. As the differences have not changed, this reduction does not affect profit or loss.True / falseL2
- Which of the following situations of Squirelle changes its deferred tax balances without any change in the amount of its temporary differences?Single choiceL2
- After a lower rate is enacted, Vauclarde reduces by 24,000 its deferred tax liability, which arises solely from accelerated tax depreciation. It recorded: debit deferred tax liability 24,000, credit reserves (equity) 24,000. Where is the error?Single choiceL2
Tax recognised in OCI or equity30 questions
- Current or deferred tax relating to an item recognised in other comprehensive income is also recognised in other comprehensive income, whether the item was recognised in the same period or in a different period.True / falseL2
- When a change in accounting policy applied retrospectively adjusts the opening balance of retained earnings, the related deferred tax is recognised in profit or loss of the period of the change.True / falseL2
- The current and deferred tax effects of a transaction are accounted for consistently with the accounting for the transaction itself.True / falseL2
- When it is exceptionally difficult to determine the share of tax that relates to items recognised outside profit or loss, the entity determines it by a reasonable pro rata allocation of its tax in the jurisdiction concerned, or by another method that achieves a more appropriate allocation in the circumstances.True / falseL2
- Tarvalis revalues an owner-occupied building under IAS 16; the increase is recognised in other comprehensive income, with no adjustment to the tax base. Where does it recognise the resulting deferred tax liability?Single choiceL2
- Ulvaride issues a convertible loan; under the legislation in the case, the tax base of the liability component equals the total of the liability and equity components, giving rise to a taxable difference. How is the related deferred tax liability recognised?Single choiceL2
- Valmorce corrects a prior period error by restating the opening balance of its retained earnings. Where does it recognise the tax effect of this correction?Single choiceL2
- The deferred tax liability relating to the equity component of Wendrolle's convertible loan decreases as the liability component unwinds. Where is this decrease recognised?Single choiceL2
- Yslande's only deferred tax liability arose from a land revaluation recognised in other comprehensive income three years ago. A lower rate is enacted this year. Where is the decrease in the liability recognised?Single choiceL2
- For which of the following items of Zarvenne is deferred tax recognised outside profit or loss?Multiple choiceL2
- In Alvrenne's jurisdiction, the law allows a tax revaluation that increases the tax base of certain assets. Which statements about the tax effect of this tax revaluation are correct?Multiple choiceL3
- Brevonne revalues a building under IAS 16; the increase of … is recognised in other comprehensive income, with no effect on the tax base. The expected rate is …%. Compute the deferred tax recognised in OCI and the revaluation surplus net of tax.CalculationL2Variant
- Corvianne applies the revaluation model to its port facilities. At the reporting date, their revalued amount exceeds the previous carrying amount by …; the increase is recognised in OCI and the tax base is unchanged. With a rate of …%, compute the deferred tax recognised in OCI and the net revaluation surplus.CalculationL2Variant
- Dravelin has taxable differences identified by origin: … arising from accelerated tax depreciation (profit or loss) and … arising from a revaluation recognised in OCI. The rate falls from …% to …%; the differences are unchanged. Compute the decrease in the liability recognised in profit or loss and the decrease recognised in OCI.CalculationL3Variant
- A rate cut reduces Esquerlle's net deferred tax liability by …. The differences, arising partly from revaluations recognised in OCI and partly from items in profit or loss, can no longer be tracked individually. After a documented analysis, management judges that …% of the net liability relates to the revaluations and uses this pro rata key. Compute the effects in OCI and in profit or loss.CalculationL4Variant
- Fauvrenne issues a convertible loan for …; the liability component is measured at …, the balance being the equity component. Under the legislation in the case, the tax base of the liability component equals the total issue proceeds. At a rate of …%, compute the deferred tax liability and the equity component net of tax.CalculationL3
- Gaudrisse discovers that a restoration provision of … should have been recognised in a prior period; it corrects the error by restating the opening balance of retained earnings. Under the legislation in the case, the expense will be deductible when the restoration is carried out, and the related deferred tax asset is recoverable at a rate of …%. Compute the tax effect and the net adjustment to the opening balance.CalculationL3
- Harlouve recognised in other comprehensive income an IAS 16 revaluation of … on a warehouse, with no adjustment to the tax base. The rate is …%. Record the deferred tax entry.Journal entryL2Variant
- Ismarelle, which measures its hotels under the revaluation model, records an increase of … recognised in OCI; the tax base is unchanged. The expected rate is …%. Record the deferred tax entry.Journal entryL2Variant
- Jaunelle issues convertible bonds; the equity component amounts to …. Under the legislation in the case, the tax base of the liability component equals the total proceeds, giving a taxable difference equal to the equity component. The rate is …%. Record the deferred tax entry at issue.Journal entryL3
- Kelvanis has taxable differences of … arising from accelerated tax depreciation and of … arising from a revaluation recognised in OCI. The rate falls from …% to …%; the differences are unchanged. Record the entry.Journal entryL3
- Lindarne retrospectively applies a new accounting policy that reduces the opening carrying amount of assets by …, with no effect on their tax base; the opening balance of retained earnings is adjusted. A deductible difference results; the deferred tax asset is recoverable at a rate of …%. Record the deferred tax entry for the opening adjustment.Journal entryL2
- Morlance recognised an IAS 16 revaluation of 300,000 in OCI and, for deferred tax (rate 25%): deferred tax expense in profit or loss 75,000 / deferred tax liability 75,000. Where is the error?Single choiceL3
- Nastrelle's deferred tax liability includes 90,000 relating to revaluations recognised in OCI and 60,000 relating to accelerated tax depreciation. A rate cut reduces these amounts by 15,000 and 10,000 respectively. The accountant recognised 25,000 as deferred tax income in profit or loss. Where is the error?Single choiceL3
- Oberlance measures its machines at cost, with no accounting revaluation. It opts for a tax revaluation that increases their tax base and recognised the related deferred tax effect in other comprehensive income. Where is the error?Single choiceL3
- Pavrelle carries a deferred tax liability of 57,000 on revalued land (revaluation in OCI), measured at the 19% rate for gains on land in line with the consequences of sale. An enacted law lowers that rate to 16%; the 300,000 difference is unchanged. Which treatment applies?Single choiceL3
- Quelvaine is taxed under a graduated scale; part of its taxable profit comes from gains recognised in OCI, and it is exceptionally difficult to determine the current tax relating to them. How does it determine the share of tax to be recognised in OCI?Single choiceL3
- Rauvelle holds bonds whose fair value changes are recognised in OCI (accounting treatment given by the case). An unrealised loss of 120,000 is recognised in OCI; for tax purposes, it will only be deductible on disposal. The rate is 25% and the deferred tax asset is recoverable. Which treatment applies?Single choiceL3
- A rate cut is enacted. The Sevrandal group's net deferred tax liability mixes differences arising in profit or loss (depreciation), in OCI (property revaluations) and in equity (component of a convertible); the information system does not track every difference by origin. Write the memo justifying the allocation of the effect of the rate change.JudgmentL4
- For the year-end, Tolvarde lists four tax effects: (1) deferred tax on a building revaluation in OCI; (2) deferred tax on the equity component of a convertible loan issued during the year; (3) deferred tax on an error correction adjusting opening retained earnings; (4) the decrease, over the year, in the liability arising from item (2). Write the memo allocating each effect (profit or loss, OCI or equity).JudgmentL4
Dividends and withholding taxes17 questions
- The tax consequences of a dividend for the entity paying it are recognised when it recognises the liability to pay the dividend.True / falseL2
- The withholding tax that the entity pays to the tax authorities on behalf of its shareholders, when it pays a dividend, is recognised as the entity's tax expense.True / falseL2
- An entity whose tax depends on the distribution of its profits, and for which it is impracticable to compute the total amount of the potential tax consequences of a dividend, has nothing to disclose on the matter in its notes.True / falseL2
- In Ulmerac's jurisdiction, distributed profits are taxed at a lower rate than retained profits. The board proposes a dividend in February 20X6, after the reporting date of 31 December 20X5; no dividend liability exists at the reporting date. Which rate does Ulmerac use at 31 December 20X5?Single choiceL2
- Valquerne declares a dividend, recognised as a liability; the legislation in the case imposes on it additional tax on distributed profits. Those profits come from its ordinary sales and production. Where does it recognise this additional tax?Single choiceL2
- Wiltrane is subject to a regime in which tax depends on the distribution of profits. What information does it provide about the potential tax consequences of paying dividends?Single choiceL2
- Xaviole proposes a dividend after the reporting date, before the financial statements are authorised for issue; it is not recognised as a liability. Under the legislation in the case, the dividend will give rise to additional tax. What does Xaviole do?Single choiceL2
- When paying a dividend, Yvrelac bears two levies set by the legislation in the case: (a) a 15% withholding deducted from the dividend and paid over on behalf of the shareholders; (b) additional tax of 4% owed by Yvrelac itself, the distributed profits arising from its ordinary activity. Which statements are correct?Multiple choiceL3
- Which statements about levies relating to dividends are correct?Multiple choiceL3
- Zelmonde has been taxed at the higher rate for undistributed profits. Under the legislation in the case, a distribution entitles it to a refund equal to …% of the dividend. It declares a dividend of …, recognised as a liability; the distributed profits arise from its ordinary activity. Compute the tax income to be recognised.CalculationL2Variant
- Amorvelle declares a dividend of …, recognised as a liability. Under the legislation in the case, the distribution triggers additional tax of …% of the dividend, borne by Amorvelle. According to the analysis in the case, …% of the distributed profits were generated by transactions recognised in profit or loss and the rest by gains recognised in OCI. Compute the additional tax and its allocation.CalculationL3Variant
- Brontelle declares a gross dividend of …. Under the legislation in the case, it must withhold …% of the dividend and pay it to the authorities on behalf of the shareholders. Compute the withholding, the net amount due to shareholders and the effect on Brontelle's tax expense.CalculationL3
- Cardelle recognises a dividend of … as a liability. Under the legislation in the case, the distribution requires it to pay additional tax of …% of the dividend; the distributed profits come from its operations. Record the entry for the additional tax.Journal entryL3
- Dalvanne declares a gross dividend of …. Under the legislation in the case, it withholds …% on behalf of the shareholders and will pay it to the authorities. Record the entry for the declaration of the dividend.Journal entryL2
- Estravane declares a dividend of 300,000. Under the legislation in the case, it must itself pay a 7% distribution tax (21,000); its profits come from its operations. The accountant charged the 21,000 to equity with the dividend. Where is the error?Single choiceL3Variant
- Fervalde declares a gross dividend of 800,000 and withholds 10% (80,000) on behalf of its shareholders, as required by the legislation in the case. The accountant recognised the 80,000 as current tax expense and charged only 720,000 to equity. Where is the error?Single choiceL3Variant
- In Gorvanne's jurisdiction, distributed profits are taxed at 20% and retained profits at 30% (case data). At 31 December 20X5, the shareholders have not yet decided on any distribution; a dividend will be declared in April 20X6. How does Gorvanne measure its current and deferred tax at 31 December 20X5?Single choiceL3
Change in tax status (SIC-25)9 questions
- The tax consequences of a change in the tax status of an entity or its shareholders are recognised in profit or loss, unless they relate to transactions or events recognised directly in equity or in other comprehensive income.True / falseL2
- A change in tax status can only alter deferred tax assets and liabilities, never current tax.True / falseL2
- Which of the following events is an example of a change in tax status covered by SIC-25?Single choiceL2
- Its initial public offering makes Hublande lose a favourable tax regime; its deferred tax liability, arising from accelerated tax depreciation, increases. Where does Hublande recognise this increase?Single choiceL2
- Itravelle enjoyed a reduced rate of …% reserved for unlisted companies. After its initial public offering, its differences will be taxed at …% (legislation in the case). Its taxable differences of … all arise from accelerated tax depreciation. Compute the deferred tax liability after the change and the expense recognised in profit or loss.CalculationL3Variant
- Jessonne's controlling shareholder moves its head office abroad; Jessonne loses a group tax regime and its differences will be taxed at …% instead of …% (legislation in the case). Its taxable differences comprise … arising from accelerated tax depreciation and … arising from a revaluation recognised in OCI. Compute the effect in profit or loss and the effect in OCI.CalculationL3Variant
- Following a restructuring of its equity, Kaprelle loses a tax incentive: its taxable differences of …, arising from accelerated tax depreciation, will be taxed at …% instead of …% (legislation in the case). Record the entry.Journal entryL3
- In October 20X5, following the listing of its shares, Lauvrine becomes eligible for a more favourable tax regime (legislation in the case): its 20X5 current tax decreases immediately and its deferred tax assets, arising from provisions recognised in profit or loss, are remeasured downwards at the new rate. How does it recognise these two effects?Single choiceL3
- Mergance's only deferred tax liability relates to a building revaluation recognised in OCI (difference of 600,000). A restructuring of its equity makes it lose a favourable regime: the applicable rate rises from 20% to 25% (legislation in the case). How is the 30,000 increase recognised?Single choiceL3
Deferred tax in business combinations24 questions
- In a business combination, if the tax base of an acquired identifiable asset is not changed while the asset is recognised at its fair value at the acquisition date, a temporary difference arises.True / falseL3
- The deferred tax liability arising from the fair value adjustments of a business combination is recognised as deferred tax expense in consolidated profit or loss for the period of acquisition.True / falseL3
- When the acquisition of a profitable subsidiary makes the use of the acquirer's past tax losses probable, the deferred tax asset thus recognised by the acquirer reduces the goodwill on the acquisition.True / falseL3
- A deferred tax benefit acquired in a business combination, not recognised at the acquisition date, is recognised eighteen months later, after the measurement period has closed, following an increase in the subsidiary's profits: it is recognised in profit or loss and not as a reduction of goodwill.True / falseL4
- In the acquirer's consolidated financial statements, what is the effect of recognising the deferred tax liabilities arising from the fair value adjustments of a business combination?Single choiceL3
- In a business combination, the goodwill recognised by the Ferondil group amounts to 1,000,000, whereas local tax law (case data) gives it an amortisable tax base of 1,300,000. What does IAS 12 provide for the difference of 300,000?Single choiceL3
- The Halquentin group acquires Pruvenza. Which items are part of the accounting for the combination and therefore change goodwill at the acquisition date?Multiple choiceL3
- A deferred tax benefit acquired in a business combination was not recognised at the acquisition date. Which statements about its subsequent recognition are correct?Multiple choiceL4
- The Brezolan group acquires Quessaro. At the acquisition date, a warehouse is recognised at its fair value of …, its tax base remaining …; a customer list not recognised by Quessaro is recognised at …, with a nil tax base. The applicable tax rate is …%. Compute the deferred tax liability arising from these adjustments.CalculationL3Variant
- On acquiring Morliandre, the Taldrix group recognises: inventories at their fair value of … (tax base …); patents at … (nil tax base); a litigation liability assumed of …, tax deductible when paid (nil tax base). The group's future taxable profits allow the deductible difference to be used. Tax rate: …%. Compute the deferred tax liability and asset arising from the combination.CalculationL3Variant
- The Vasquel group acquires 100% of Obrevain for consideration of …. The identifiable assets acquired and liabilities assumed, measured at fair value, represent net assets of … before deferred tax; the fair value adjustments create taxable temporary differences of …, the tax bases being unchanged. Tax rate: …%. Teaching assumption: goodwill = consideration − identifiable net assets (no non-controlling interests). Compute goodwill.CalculationL3Variant
- Jaskova is 100% acquired by the Pellorix group for …. Before deferred tax, identifiable net assets at fair value are …. The combination gives rise to taxable differences of … and deductible differences of …, whose use is judged probable. Tax rate: …%. Using the teaching assumption goodwill = consideration − identifiable net assets, compute goodwill.CalculationL3Variant
- In the consolidated financial statements of the Drunelle group, the brand of the acquiree Nimbrage is recognised at its fair value of …; its tax base is nil. Tax rate: …%. Goodwill was provisionally computed without deferred tax. Record the additional entry at the acquisition date.Journal entryL3
- Kervadin had tax losses carried forward of …, with no deferred tax asset for lack of probable profits. It acquires Lumbrac, which is highly profitable; tax law (case data) now allows it to set those losses against Lumbrac's profits, and their use becomes probable. Tax rate: …%. Record the entry for Kervadin's losses.Journal entryL3Variant
- The Orsavel group had not recognised a deferred tax asset on its warranty provisions of …, deductible when paid, for lack of probable taxable profit in its tax entity. The tax absorption of a profitable acquiree within the same taxable entity makes such profit probable at the acquisition date. Tax rate: …%. Record the entry at Orsavel.Journal entryL4Variant
- Seven months after acquiring Isparo, within the measurement period, the tax review carried out by the Arquevin group reveals tax losses carried forward of Isparo that existed at the acquisition date and were not identified then: the corresponding deferred tax benefit, judged recoverable, amounts to …. The goodwill related to Isparo has a carrying amount of …. Record the entry.Journal entryL4
- The Belcastor group acquired Calvidra in March 20X5 (twelve-month measurement period, case data). Two acquired deferred tax benefits, not recognised at the acquisition, are recognised later: … in November 20X5, following new information about losses that existed at the acquisition date; … in June 20X6, following higher taxable profits than expected. The related goodwill amounts to …. Compute the total reduction in goodwill and the income recognised in profit or loss.CalculationL4
- For the acquisition of Dorvenne, the Estriva group's consolidation file shows: identifiable net assets at fair value 5,200,000; consideration 6,000,000; goodwill 800,000. A note states that the deferred tax liability of 240,000 on the remeasurement of Dorvenne's assets 'will be charged to profit or loss at year-end'. Where is the error?Single choiceL3
- The Falquenne group acquires Gernasse, whose future profits at last make probable the use of Falquenne's own tax losses carried forward (potential asset 700,000). The financial controller recorded: debit deferred tax asset 700,000, credit Gernasse goodwill 700,000. Where is the error?Single choiceL4
- The Hollivane group acquired Jorvella in January 20X4 (twelve-month measurement period, case data). In September 20X6, the recovery in Jorvella's profits makes recoverable acquired losses not recognised until then: benefit 320,000. Hollivane debited the deferred tax asset and credited Jorvella's goodwill by 320,000. Where is the error?Single choiceL4
- The Mercadine group acquires Norvaline on 1 April 20X5; goodwill amounts to 4,000,000. In October 20X5, still within the measurement period, a review of Norvaline's past tax returns reveals tax losses carried forward that existed at the acquisition date; the corresponding deferred tax benefit, judged recoverable, is 600,000. Which treatment applies?Single choiceL4
- The Quorvane group acquires Rastelle on 1 February 20X5; Rastelle's tax losses carried forward (potential benefit 250,000) are not recognised, for lack of probable profits. In August 20X5, within the measurement period, Quorvane awards Rastelle a subcontracting contract signed after the acquisition, which makes those losses recoverable. Which treatment applies?Single choiceL4
- The Silvadore group acquired Trelmont on 1 July 20X5 (twelve-month measurement period, case data). At 31 December 20X5: (1) Trelmont's expected profits make Silvadore's own losses recoverable; (2) a tax review reveals tax credits of Trelmont that existed at 1 July and were overlooked at the acquisition; (3) the deferred tax liability on the remeasurement of Trelmont's land was omitted. Write a memo stating, for each point, the other side of the deferred tax, distinguishing the rule of the standard, case data and judgement.JudgmentL4
- The Uvrelac group acquires Valquessa. In which of these situations does the combination give rise to a temporary difference on an acquired identifiable asset?Single choiceL3
Share-based payment16 questions
- When the amount of the future tax deduction for services remunerated in share options is not known at the reporting date, the entity estimates it on the basis of information available at that date.True / falseL3
- When the estimated future tax deduction of a share option plan exceeds the cumulative remuneration expense recognised, the whole of the related tax benefit is recognised in profit or loss.True / falseL3
- In Wenlandor's country, the tax deduction for a share option plan equals the intrinsic value of the options at the exercise date (case data). On what basis does Wenlandor estimate the future deduction at the reporting date?Single choiceL3
- Yspala granted … options to its managers, subject to … years of service. The tax law in the case grants, on exercise, a deduction equal to the intrinsic value of the options, spread over the service period for the services received. At the reporting date, … years of service have been rendered and the intrinsic value is … per option; all beneficiaries are expected to stay. Tax rate: …%. Future taxable profit is probable. Compute the deferred tax asset at the reporting date.CalculationL3Variant
- One year after granting … options exercisable after … years of service, Zarnovel prepares its year-end: … year of service has been rendered, the share price shows an intrinsic value of … per option, and the tax law in the case will deduct the intrinsic value on exercise, allocated to services in proportion to the period elapsed. Tax rate: …%; sufficient future profits. What deferred tax asset does Zarnovel recognise?CalculationL3Variant
- At the reporting date, the estimated future tax deduction of Arquevin's share option plan is …, against a cumulative remuneration expense recognised of …. Tax rate: …%; the deferred tax asset is recoverable. Split the tax effect between profit or loss and equity.CalculationL3Variant
- After a fall in the share price, the estimated future deduction of Belcastor's free share plan is now only …, whereas the cumulative remuneration expense reaches …. Tax rate: …%; the asset is recoverable. What part of the tax effect goes to profit or loss, and what part to equity?CalculationL4Variant
- Calvidra recognises the deferred tax on its share option plan for the first time: estimated future deduction …, cumulative remuneration expense …, rate …%, recoverable asset. Record the entry at the reporting date.Journal entryL3
- At 31 December 20X5, the deferred tax asset of Dorvenne's share option plan was …, recognised entirely in profit or loss (no excess at that date). At 31 December 20X6, the rise in the share price brings the estimated future deduction to …, against a cumulative remuneration expense of …. Rate: …%; recoverable asset. Teaching assumption: the split is determined on cumulative amounts at the reporting date. Record the 20X6 entry.Journal entryL4
- For its share option plan, Estriva recorded at the reporting date: debit deferred tax asset 96,000, credit deferred tax income 96,000. Data: estimated future deduction 480,000, cumulative remuneration expense 400,000, rate 20%, recoverable asset. Where is the error?Single choiceL3
- Falquenne estimates the future tax deduction of its share option plan from the grant-date fair value of the options (6 per option), whereas the tax law in the case will deduct intrinsic value on exercise and the intrinsic value at the reporting date is 15 per option. Where is the error?Single choiceL4
- At the end of 20X5, Gernasse carried a deferred tax asset of 50,000 on its share option plan (deduction equal to intrinsic value on exercise, under the tax law in the case). At 31 December 20X6, the share price has fallen below the exercise price: the intrinsic value is nil and no recovery can be anticipated from the information available. Which treatment applies at the 20X6 reporting date?Single choiceL4
- In Hollivane's country, the tax law (case data) caps the tax deduction for a share plan at the remuneration expense recognised. At the reporting date, the estimated future deduction is therefore equal to the cumulative expense of 300,000; rate 25%, recoverable asset. Where does Hollivane recognise the tax effect of 75,000?Single choiceL3
- In some jurisdictions, the tax deduction for remuneration paid in share options may differ in amount from the cumulative remuneration expense and arise in a later accounting period.True / falseL3
- Kervadin recognises an expense each year for its share option plan; the tax law in the case grants the deduction only when the options are exercised, for their intrinsic value at that date. Why does deferred tax arise at the reporting date?Single choiceL3
- The Lumbrac group has two subsidiaries, each with an identical share option plan. Country A (case data): the expense recognised is deductible in the same period in which it is recognised, for the same amount. Country B: the deduction arises only when the options are exercised, for their intrinsic value. Which subsidiary recognises a deferred tax asset for the plan (future profits probable)?Single choiceL4
Offsetting tax assets and liabilities13 questions
- An entity offsets a current tax asset and a current tax liability if, and only if, it has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.True / falseL2
- Ostravelle holds a current tax receivable (overpaid instalments) and a current tax payable to the same authority, which grants it a right of set-off; Ostravelle has nevertheless decided to pay the liability in March and to obtain the refund in October. It may present only the net amount in its statement of financial position.True / falseL2
- In its consolidated financial statements, a group may offset the deferred tax asset of a subsidiary taxed in one country against the deferred tax liability of another subsidiary taxed in another country, since both balances belong to the same group.True / falseL2
- Which conditions allow a deferred tax asset and a deferred tax liability to be offset?Single choiceL2
- Why does IAS 12 require the deferred tax asset and liability of the same taxable entity, relating to the same authority, to be offset when current tax can be set off, without requiring a schedule?Single choiceL3
- The Pelvanor group reviews its deferred tax balances at 31 December 20X5. Which pairs of deferred tax assets and liabilities must be offset?Multiple choiceL2
- The Quessaro group consolidates three subsidiaries. A (country X): deferred tax asset … and deferred tax liability …, with a right to set off its current tax. B (country X, a taxable entity separate from A, with no intention of settling net with A): asset …. C (country Y): liability …. Compute total deferred tax assets and total deferred tax liabilities presented in the consolidated statement of financial position.CalculationL2Variant
- Silvadore group. P and Q (country M) are separate taxable entities that have a right of set-off and intend to settle net in each future period: P's liability …, Q's asset …. R (country M, outside this arrangement, with no right or intention to settle net with P or Q): asset …. S (country N): asset … and liability …, same taxable entity, right of set-off. What totals of deferred tax assets and liabilities does the group present?CalculationL3Variant
- The Trelmont group presents a net deferred tax liability of 380,000 in its consolidated statement of financial position, obtained by offsetting the 600,000 liability of its subsidiary in country X against the 220,000 asset of its subsidiary in country Y, 'both subsidiaries being 100% owned'. Where is the error?Single choiceL3
- Uvrelac, a single taxable entity relating to a single authority that allows current tax to be set off, presents separately a deferred tax asset of 120,000 and a deferred tax liability of 410,000, 'for lack of a schedule showing that the reversals will be simultaneous'. Where is the error?Single choiceL2
- In country Z, Valquessa (deferred tax liability 500,000) and Wenlandor (deferred tax asset 180,000), separate taxable entities, settle their tax net under a group regime which, under the tax law in the case, will end after 20X7. Reversals of Wenlandor's asset are expected in 20X6 and 20X9, those of Valquessa's liability in 20X8 and 20X9. How should the presentation be determined?Single choiceL3
- In the Nimbrage group's consolidated financial statements, the subsidiary Orsavel has a current tax receivable of 150,000 and the subsidiary Pruvenza a current tax payable of 400,000 to the same authority. Each files and pays separately; no mechanism allows them to make a single net payment. How should these balances be presented?Single choiceL3
- In country M, the subsidiaries Arquevin (deferred tax liability 700,000) and Belcastor (deferred tax asset 260,000) are separate taxable entities that each file and pay their tax, with no group regime or intention to settle net. The group presents a net liability of 440,000, 'both taxes being levied by the same authority'. Where is the error?Single choiceL3
Tax expense in profit or loss9 questions
- The tax expense (income) related to profit or loss from ordinary activities is presented in profit or loss, in the statement(s) of profit or loss and other comprehensive income.True / falseL1
- Arquevin takes the current tax on its operating profit directly to equity, so as not to reduce reported profit.True / falseL1
- Exchange differences on a foreign deferred tax liability recognised in profit or loss may be classified as deferred tax expense (income) if that presentation is considered the most useful to users.True / falseL2
- IAS 21 specifies that exchange differences on foreign deferred tax assets and liabilities must always be presented within finance income and expenses.True / falseL2
- The tax expense presented in profit or loss is the aggregate amount included in profit or loss in respect of current tax and deferred tax.True / falseL1
- Where does Belcastor present the tax expense related to profit or loss from its ordinary activities?Single choiceL1
- Calvidra recognised a revaluation of land in other comprehensive income; the related deferred tax amounts to 45,000. How is this tax presented?Single choiceL2
- Dorvenne's 20X5 data: current tax 500,000; deferred tax expense in profit or loss 80,000; deferred tax on a revaluation recognised in other comprehensive income 40,000. What tax expense does Dorvenne present in profit or loss?Single choiceL2
- The Estriva group holds a foreign subsidiary whose deferred tax liability, translated under IAS 21, gives rise to an exchange loss of 12,000 recognised in profit or loss. How may Estriva classify this loss?Single choiceL2
Components of tax expense and deferred tax balances17 questions
- The major components of tax expense (income) are disclosed separately.True / falseL2
- Yspala, which recognises revaluations and actuarial differences in other comprehensive income, may simply disclose the total amount of tax relating to its other comprehensive income.True / falseL2
- The subsidiary Zarnovel incurred a tax loss in 20X5 but recognised a deferred tax asset whose use depends on future taxable profits. As long as management judges the asset recoverable, no specific disclosure about it is required.True / falseL3
- For its investments in subsidiaries with no deferred tax liability recognised, a group must disclose the aggregate amount of the related temporary differences; disclosing the amount of the unrecognised liabilities is only encouraged where practicable.True / falseL2
- Arquevin is challenging in court a tax reassessment that has not yet been decided. Which standard governs the disclosures about this unresolved tax dispute, and which standard governs any recognition?Single choiceL2
- For each type of temporary difference and each type of unused tax losses and credits, what information does IAS 12 require?Single choiceL3
- Which of these items does IAS 12 require in the income tax note?Multiple choiceL2
- The Orsavel group's tax controller is preparing the note: which of the following circumstances require a deferred tax asset to be detailed, including its amount and the justification for it?Multiple choiceL3
- To prepare its income tax note, the Brezolan group draws up the movement schedule of its net deferred tax liability: opening …; deferred tax expense in profit or loss …; deferred tax recognised in other comprehensive income (charge) …; liability arising from a business combination in the year …. Compute the closing net deferred tax liability.CalculationL3Variant
- Review of the Ferondil group's income tax note. Net deferred tax liability: opening …; deferred tax income in profit or loss …; deferred tax charge in other comprehensive income …; deferred tax credited directly to equity …; liability arising from a business combination …. The published statement of financial position shows a net liability of …. Compute the expected closing balance and the difference still to be explained.CalculationL4Variant
- Gernasse prepares its 20X5 income tax note: current tax for the year …; additional current tax due for 20X4, identified in 20X5 (case data) …; deferred tax expense …. Compute the tax expense for the year.CalculationL3
- Hollivane has unused tax losses of …; a deferred tax asset is recognised for only … of those losses. In addition, deductible temporary differences of … have given rise to no asset. What amount of unrecognised differences, losses and credits does Hollivane disclose in its note (no tax credits)?CalculationL4
- The Jorvella group recognised a deferred tax asset of 3,200,000 in its subsidiary in country K, which incurred a tax loss in 20X5; management relies on a firm order book and a completed restructuring. What information must the income tax note contain in this respect?Single choiceL4
- Which of these items may be among the components of tax expense disclosed in the note?Multiple choiceL2
- Kervadin's 20X5 income tax note: current tax before use of losses …; benefit from prior losses never recognised, used to reduce current tax …; release of excess current tax for 20X4 …; deferred tax expense on temporary differences originating in the year …; deferred tax income from a rate cut …; write-down of a deferred tax asset …. Compute tax expense.CalculationL3
- In Lumbrac's country, tax on distributed profits is higher than on retained profits (case data); Lumbrac therefore measures its tax at the rate for undistributed profits. What does it disclose about future dividends?Single choiceL3
- IFRIC 23 creates a specific disclosure requirement to describe in detail, in the income tax note, every uncertain tax treatment used by the entity.True / falseL2
Reconciliation of tax expense and accounting profit19 questions
- The explanation of the relationship between tax expense and accounting profit may take the form of a numerical reconciliation in amounts or of a reconciliation between the average effective tax rate and the applicable rate.True / falseL2
- Once the numerical reconciliation is presented, the entity need not disclose how the applicable tax rate used was determined.True / falseL2
- When the applicable tax rate moves from 28% to 25% from one year to the next, the entity explains that change.True / falseL3
- For its numerical reconciliation, to what amount does Morliandre apply the applicable tax rate?Single choiceL2
- What is the purpose of explaining the relationship between tax expense and accounting profit?Single choiceL3
- Nimbrage (applicable rate stable over the period) prepares its numerical reconciliation. Which of these items are reconciling items between expected tax and tax expense?Multiple choiceL3
- Orsavel earns accounting profit before tax of …; the applicable tax rate it has used (case data) is …%. Compute the expected tax, the starting point of its numerical reconciliation.CalculationL2Variant
- Pruvenza's profit before tax expense amounts to …. It uses as applicable rate the domestic rate of …% (case data). What expected tax does it show at the top of its reconciliation?CalculationL2Variant
- Quorvane (accounting profit …, applicable rate …%) recognised non-deductible fines of … and received exempt dividends of …; additional tax of … for the previous year is recognised in profit or loss. Its temporary differences are all covered by deferred tax at the same rate. Compute the tax expense expected at the end of the reconciliation.CalculationL3Variant
- The Rastelle group reports consolidated accounting profit of …; applicable rate used …% (the parent's domestic rate, case data). This profit includes: … earned by a subsidiary taxed at …%; a tax loss of … of another subsidiary (same rate as the parent), with no deferred tax asset; non-deductible expenses of …. Compute the consolidated tax expense resulting from the reconciliation.CalculationL4Variant
- Silvadore's draft reconciliation shows: expected tax …; effect of non-deductible expenses +…; effect of exempt income −…. The tax expense recognised is …. What difference remains to be explained before the reconciliation is published?CalculationL3Variant
- Review of the Trelmont group's reconciliation: accounting profit …, applicable rate …%; research tax credit −…; effect of foreign rates −…; release of excess tax for the prior year −…. Tax expense recognised: …. Compute the unexplained difference.CalculationL4Variant
- Uvrelac's reconciliation (applicable rate 25%, unchanged) includes a line 'accelerated tax depreciation: −80,000', whereas the related deferred tax is recognised at the same rate. Where is the error?Single choiceL3
- Valquessa (profit before tax 2,000,000, tax expense 500,000, applicable rate 25%) opens its reconciliation with 'expected tax: 1,500,000 × 25% = 375,000' and presents an 'other' item of 125,000. Where is the error?Single choiceL3
- The Wenlandor group's 20X5 reconciliation (expected tax 3,000,000, expense 4,100,000) includes: non-deductible expenses +150,000; exempt income −50,000; current-year losses of subsidiaries with no deferred tax asset +1,000,000. Management expects these subsidiaries to remain loss-making for two years. Which explanation should the note highlight?Single choiceL4
- Yspala, headquartered in country H, uses an applicable rate of 27%: 22% national income tax plus 5% local tax levied on a comparable taxable profit (case data). What must its note contain?Single choiceL3
- On what criterion does the entity choose the applicable rate for its reconciliation?Single choiceL3
- Calvidra (accounting profit …, applicable rate …%) remeasured its opening deferred tax liability following a rate cut enacted for future years: deferred tax income of … (case data). It also has non-deductible expenses of …. Compute the tax expense resulting from the numerical reconciliation.CalculationL3
- After moving its headquarters from country R (rate 30%) to country S (rate 25%) in 20X5, the Dorvenne group now uses 25% as the applicable rate in its reconciliation, against 30% in 20X4. What does it disclose?Single choiceL4
Uncertain tax treatments: identify and assess23 questions
- An uncertain tax treatment is a tax treatment for which there is uncertainty over whether the relevant taxation authority will accept it under tax law.True / falseL2
- Within the meaning of IFRIC 23, a court ruling on whether a tax treatment is acceptable is never a taxation authority.True / falseL2
- Arquevin may take into account the fact that the taxation authority in its country audits on average only one return in twenty when assessing the effect of an uncertain tax treatment.True / falseL2
- Where there is an uncertain tax treatment, the entity recognises and measures its current or deferred tax applying IAS 12, on the basis of the amounts determined under IFRIC 23.True / falseL2
- If the entity concludes that it is probable that the authority will accept an uncertain tax treatment, it determines its taxable profit, tax bases and tax rates consistently with the treatment used or planned in its tax filings.True / falseL3
- Which of these questions is among those addressed by IFRIC 23?Single choiceL2
- What do 'tax treatments' cover within the meaning of IFRIC 23?Single choiceL2
- On what criterion does the entity decide whether to consider an uncertain tax treatment separately or together with others?Single choiceL3
- Belcastor concludes that it is not probable that the authority will accept the deduction of an intragroup restructuring charge. What is the consequence?Single choiceL3
- What assumptions does the entity make about the examination of its tax treatments by the authority?Multiple choiceL2
- Which factors may the entity consider in deciding the unit of account of a tax uncertainty?Multiple choiceL3
- When acceptance of an uncertain tax treatment is not probable, which amounts may be affected by the effect of the uncertainty?Multiple choiceL3
- The Calvidra group charges its subsidiaries brand royalties, management fees and IT services, all based on the same transfer pricing study. The authority usually examines these flows together, in the light of that study. Which unit of account should be used?Single choiceL3Variant
- Dorvenne has two uncertainties: whether a project is eligible for a research tax credit, assessed by a specialised unit on a technical file, and whether compensation paid to a former director is deductible, checked during general audits. The tax director proposes treating them together 'because one should be won and the other lost'. Which unit of account should be used?Single choiceL3Variant
- Estriva deducted a clean-up provision in 20X5. Two independent tax opinions and settled case law conclude that the deduction will be accepted by a fully informed authority (case data). Which treatment applies in the 20X5 financial statements?Single choiceL3
- Falquenne deducted in 20X5 interest paid to a sister company; according to its advisers, it is not probable that a fully informed authority will accept this deduction (case data). How is the uncertainty reflected in the 20X5 financial statements?Single choiceL4
- Gernasse claims tax amortisation on an acquired brand, whereas a fully informed authority would probably not accept this amortisation (case data). The brand is not amortised for accounting purposes. Which amount does the uncertainty directly affect for deferred tax?Single choiceL4
- Hollivane's year-end file states: 'questionable deduction of 400,000; acceptance unlikely if audited, but audit probability only 10%; no additional tax recognised'. Where is the error?Single choiceL3
- Isparo, judging acceptance of a deduction unlikely, recognised 180,000 as a 'charge to provisions for risks' (operating expense) and as a 'provision for tax risks' in liabilities. Where is the error?Single choiceL3
- The Jorvella group presents a single 'net' uncertainty of 50,000, obtained by grouping a 350,000 risk of rejection of transfer prices in country P and a 300,000 refund claim on a tax in country Q, 'to reflect the overall exposure'. Where is the error?Single choiceL4
- The Kervadin group deducted in 20X5 head-office costs recharged to three subsidiaries in the same country, using an allocation key that the authority challenged during an audit of another company in the sector. Its advisers consider rejection more likely than acceptance; Kervadin argues that it has not been audited for eight years. Write an analysis memo (unit of account, examination assumption, probability of acceptance, consequence), distinguishing rule, case data and judgement.JudgmentL4
- Lumbrac plans to deduct in full, in its 20X5 return not yet filed, an investment in software, whereas the authority's published practice (case data) requires it to be spread over three years; there is no case law. Explain whether this treatment falls within IFRIC 23 and what information is needed to conclude on its acceptance.JudgmentL3
- The Mercadine group has decided to consider together three uncertain tax treatments linked to the same reorganisation. How do the provisions of IFRIC 23 referring to 'an uncertain tax treatment' then apply?Single choiceL3
Uncertain tax treatments: measure and reassess26 questions
- IFRIC 23 requires the effect of every tax uncertainty to be measured using the expected value.True / falseL2
- When the same uncertainty affects current tax and deferred tax, the entity may use one probability of acceptance for current tax and another for deferred tax.True / falseL3
- The entity reassesses a judgement or estimate about an uncertain tax treatment when the facts and circumstances on which it was based change, or as a result of new information that affects it.True / falseL3
- The effect of new information about an uncertain tax treatment is recognised retrospectively, restating the year in which the treatment was used.True / falseL3
- Whether compensation of 2,000,000 is deductible depends on a single legal question: it is either allowed in full or disallowed in full. Which method better predicts the resolution?Single choiceL2
- After the reporting date but before authorisation for issue, Norvaline learns new information about an uncertain tax treatment. Which standard determines whether this is an adjusting event?Single choiceL3
- Orsavel is in dispute with the taxation authority over a reassessment not yet decided. How do IAS 12 and IAS 37 interact for this dispute?Single choiceL3
- In which of these situations is the expected value, prima facie, the method that better predicts the resolution (subject to the entity's judgement)?Multiple choiceL3
- For the transfer pricing adjustment that it judges not probably accepted, Pelvanor estimates (case data): no additional tax (…%), … (…%), … (…%) or … (…%). Judging the range scattered, it uses the expected value. Compute the additional tax to recognise.CalculationL2Variant
- The Quessaro group is negotiating with two authorities the allocation of its distribution profits. Its advisers expect additional tax of … (…%), … (…%), … (…%) or … (…%), with no dominant outcome. What amount is recognised if the entity concludes that the expected value better predicts the resolution?CalculationL3Variant
- Rastelle deducted an expense of …. The outcome is binary: the deduction is either allowed in full or disallowed in full; the probability of disallowance is …% (case data). Tax rate: …%. Rastelle concludes that the most likely amount better predicts the resolution. Compute the additional tax to recognise.CalculationL2Variant
- For a disputed withholding, Silvadore expects (case data): no tax (…%), … (…%) or … (…%). The outcomes being concentrated on one value, it uses the most likely amount. What amount does it recognise?CalculationL3Variant
- In 20X5, Trelmont deducted in full the cost of equipment of …; a fully informed authority would probably require tax depreciation over … years (acceptance not probable, most likely amount used by judgement). Carrying amount of the equipment at the reporting date: …; rate …%. Compute the resulting increase in current tax and decrease in the deferred tax liability.CalculationL3
- Uvrelac judges acceptance of an exemption applied in its 20X5 return not probable; the additional tax measured using the method that better predicts the resolution amounts to …. Only current tax is affected. Record the entry at the reporting date.Journal entryL3Variant
- Valquessa deducted in 20X5 accelerated tax depreciation of … on moulds; a fully informed authority would probably allow only … (most likely amount used). The deferred tax liability had been computed on the tax base in the return. Rate …%. Record the year-end entry reflecting the uncertainty consistently.Journal entryL3Variant
- At the end of 20X5, Wenlandor had recognised a current tax liability of … for a deduction whose acceptance was not probable. In September 20X6, after an audit, the authority notifies it in writing that it agrees with this deduction. Record the 20X6 entry.Journal entryL4
- The Yspala group's intragroup royalties are under examination; according to its advisers, the outcome may take about ten values between 0 and 1,200,000, none with a probability above 20%. Which method applies, subject to documenting the judgement?Single choiceL3
- Zarnovel's reporting date is 31 December 20X5; the financial statements are to be authorised on 15 March 20X6. On 20 February 20X6, a final decision in Zarnovel's own dispute, concerning its 20X4 return, confirms the authority's position. How should the effect of this information be analysed?Single choiceL4
- Arquevin's current tax liability for an uncertain treatment includes 120,000 for 20X1 and 90,000 for 20X2. In 20X5, the authority's right to re-examine 20X1 expires without an audit. Which treatment applies?Single choiceL4
- Since 20X3 the Belcastor group had measured a transfer pricing uncertainty using the expected value (scattered outcomes). In 20X5, the authority publishes guidance that leaves only two outcomes: full acceptance or full rejection, rejection being the more likely according to its advisers. Write a memo: should the estimate be reassessed, which method should now be used, how should the effect be recognised? Distinguish rule, data and judgement.JudgmentL4
- Calvidra has two uncertainties: (1) a tax credit whose acceptance is judged probable; (2) a deducted provision whose acceptance is not probable, affecting both 20X5 current tax and the tax base of an asset. Write a memo stating the amounts to recognise and the disclosures to consider, distinguishing rule, data and judgement.JudgmentL3
- Two years after filing its return, Dorvenne has received no reaction from the authority on an uncertain treatment; this silence alone is enough to justify reassessing its judgement.True / falseL3
- Which of these events are examples of changes in facts and circumstances or new information that may, depending on the circumstances, lead to reassessing a judgement about an uncertain tax treatment?Multiple choiceL3
- The supreme court of country X rejects, for another company, the deductibility of royalties similar to those the Estriva group deducts in country X. Estriva also deducts royalties in country Y, governed by different tax law and not covered by the decision. Which reassessment applies?Single choiceL4
- Falquenne concludes that it is probable that the authority will accept an uncertain tax treatment; no adjustment is therefore recognised. What must it still consider?Single choiceL3
- Where there are uncertain tax treatments, which disclosures must the entity consider providing, under the general requirements and the reference to tax contingencies?Multiple choiceL3
Pillar Two: exception and disclosures15 questions
- IAS 12 applies to income taxes arising from tax law enacted or substantively enacted to implement the OECD Pillar Two model rules, including qualified domestic minimum top-up taxes.True / falseL2
- The Gernasse group must recognise a deferred tax liability for the Pillar Two top-up tax it expects to pay on the future profits of a low-taxed subsidiary.True / falseL2
- The entity discloses in its notes that it has applied the exception to recognising and disclosing information about deferred taxes related to Pillar Two.True / falseL2
- In a period in which Pillar Two legislation is enacted but not yet in effect, the entity discloses known or reasonably estimable information that helps users understand its exposure to those taxes.True / falseL3
- Information about Pillar Two exposure before the effective date must reflect all the specific requirements of the legislation and cannot take the form of a range.True / falseL3
- Where and how does the Hollivane group present the Pillar Two top-up tax due for the year?Single choiceL2
- What is the scope of the exception provided by IAS 12 for Pillar Two income taxes?Single choiceL2
- The Isparo group, affected by Pillar Two legislation enacted but not yet in effect, has no known or reasonably estimable information about its exposure at the reporting date. What does it do?Single choiceL3
- The Jorvella group is subject in 20X5 to Pillar Two legislation in effect. Which of these disclosures does it provide?Multiple choiceL2
- Before the effective date of enacted Pillar Two legislation, what forms may the information about the Kervadin group's exposure take?Multiple choiceL3
- Pillar Two legislation is in effect in 20X5 for the Lumbrac group. The top-up tax computation, made under that legislation (outside IAS 12, case data), results in … payable by the parent for the year. Record the year-end entry.Journal entryL3Variant
- The Norvaline group's subsidiary Mercadine is taxed in a country that has introduced a qualified domestic minimum top-up tax, in effect in 20X5; the amount payable by the subsidiary for 20X5, computed under that legislation (case data), is …. Record the entry in the subsidiary's financial statements.Journal entryL3Variant
- At 31 December 20X5, the Pillar Two legislation of the country of Orsavel, the parent, is enacted and will take effect on 1 January 20X6. Preliminary analyses (case data) indicate that one subsidiary would be low-taxed, with top-up tax estimated at between 0.8 and 1.2 million. What does Orsavel do in its 20X5 financial statements?Single choiceL3
- In 20X6, the first year of application of Pillar Two legislation, the Pruvenza group owes top-up tax of 210,000 (case data); its teams also flag differences between carrying amounts and the bases used by the Pillar Two rules, which would produce future top-up tax. Which treatment applies?Single choiceL3
- The country of the subsidiary Quorvane has adopted a qualified domestic minimum top-up tax implementing the Pillar Two rules. The finance director proposes treating it as a levy outside IAS 12, on the grounds that it is computed under its own rules. What is the right view?Single choiceL2