IAS 12, Income Taxes

An entity has a property and uses the re-valuation model. The entity has decided that it may sell the property in the future. The property is revalued using the principles of IAS 16. There are different tax rates applicable depending on whether an entity recovers an asset through use (20%) or through sale (15%). The entity anticipates that it will recover 30% of the property`s economic benefits through use. The fair value/carrying amount of the property is $10m of which the land value is £5m. The tax base is $6m, which is split equally over land and buildings. Calculate the deferred taxation liability for the entity using the recent exposure draft (September 2010)

$240,000

$180,000

$600,000

$800,000

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be paid to or recovered from the taxation authorities. Which tax rates are used to calculate the tax liability?

Anticipated tax rates

Tax rates substantively enacted by the date of the financial statements

Tax rates and tax laws that have been enacted or substantively enacted by the date of the financial statements

Tax rates and tax laws that have been enacted

Why is deferred taxation accounted for in financial statements?

A mismatch can occur because IFRS recognition criteria for items of income and expense are different from the treatment of items under tax law

Taxation rates vary between countries

Tax losses occur and they have to be anticipated

The prudence principle dictates that it should be so

There are exceptions from providing for deferred taxation. Which of the following events is not an exception from providing for deferred taxation? Where the temporary difference arises from:

Revaluation of non-current assets

Initial recognition of an asset or liability in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit

Initial recognition of goodwill

Investments in subsidiaries, branches, associates and joint ventures where certain criteria apply

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the entity expects to recover or settle the carrying amount of its assets and liabilities. What is the expected manner of recovery for land with an unlimited life?

Through revaluation

Through sale or usage

Always through sale

Always through usage

Proposed amendments to IAS 12 were issued in March 2009, and the exposure draft proposed significant changes to IAS 12. Many of the proposed changes in the exposure draft were viewed as the introduction of more complex rules. What has the IASB decided to do with the content of the exposure draft?

Not to proceed with the proposals but to focus on some practical issues with IAS 12

To proceed with the proposals

To proceed with the proposals but to focus on some key issues in the exposure draft

Not to proceed with the proposals and to leave deferred taxation accounting alone for the present

The IASB and the FASB have indicated that they will consider undertaking a fundamental review of accounting for income taxes at some time in the future. In the meantime, the IASB is undertaking a limited scope project analysing the practical issues to see which can be addressed in the shorter term. Which of the following issues is the IASB not going to focus on?

Guidance on substantive enactment of tax laws

Allocation of current and deferred taxes within a group that files a consolidated tax return

Deferred tax arising from property re-measurement at fair value

Providing for deferred taxation based on the `dual intention` of an entity to both use and sell with respect to the recovery of the asset

The exposure draft issued in 2010 proposes an exception to the measurement principle in respect of investment property, property, plant and equipment, and intangible assets measured using the fair value model or the revaluation model in accordance with relevant IFRSs. What is the proposed exception set out in the exposure draft?

The measurement of deferred tax assets only would reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely through sale

The measurement of deferred tax assets and liabilities would reflect a dual intention that the carrying amount of the underlying asset will be recovered entirely through sale or usage

The measurement of deferred tax assets and liabilities would reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely through sale

The measurement of deferred tax assets and liabilities would reflect a rebuttable presumption that the carrying amount of the underlying asset will be recovered entirely through usage

When can the presumption set out in the ED of September 2010 be rebutted?

The directors can choose the accounting policy to be followed

Where the entity is carrying forward substantial tax losses

On the grounds of impracticality

Only when there is clear evidence that the underlying asset`s economic benefits will be consumed by the entity throughout the asset`s economic life

Which of the following classes of assets are not covered by the exposure draft of September 2010?

Property, plant and equipment measured using the cost model in IAS 16

Investment property, property, plant and equipment or intangible assets initially measured at fair value in a business combination if the entity uses the fair value or revaluation model when subsequently measuring the underlying asset

Intangible assets measured using the revaluation model in IAS 38

Investment property that is measured using the fair value model in IAS 40

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be paid to or recovered from the taxation authorities. Which tax rates are used to calculate the tax liability?

Why is deferred taxation accounted for in financial statements?

There are exceptions from providing for deferred taxation. Which of the following events is not an exception from providing for deferred taxation? Where the temporary difference arises from:

Proposed amendments to IAS 12 were issued in March 2009, and the exposure draft proposed significant changes to IAS 12. Many of the proposed changes in the exposure draft were viewed as the introduction of more complex rules. What has the IASB decided to do with the content of the exposure draft?

When can the presumption set out in the ED of September 2010 be rebutted?

Which of the following classes of assets are not covered by the exposure draft of September 2010?

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