PracticeQuestions_All_Weeks_02_to_07

PracticeQuestions_All_Weeks_02_to_07 - ACCT2542 Corporate...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 ACCT2542 – Corporate Financial Reporting and Analysis Session 2, 2009 Solutions to Practice Questions for Tutorials held in: Week 2 – Accounting for Income Tax Week 3 – Consolidation: Introduction and Basics Week 4 – Consolidation: Elimination of Intra-Entity Transactions Week 5 – Consolidation: Minority Interests Week 7 – Consolidation: Indirect Ownership Interests Lecture overheads and worked lecture examples for these topics are also available on WebCT and should be reviewed by students as part of the learning resources for the course
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 WEEK 2 (July 27 – 31): Accounting for Income Tax The objectives of this week’s tutorial are To gain a broad understanding of accounting for income taxes in Australia To understand the following the differences between accounting profit and taxable profit (taxable income) To understand the calculation and recording of current tax To determine deductible temporary differences and assessable temporary differences using the carrying amounts and tax bases of assets and liabilities To understand the calculation and recording of deferred taxes To prepare the tax journal entries for current tax and deferred tax
Background image of page 2
3 Picker DQ 6.1: What are the main principles of tax-effect accounting as outlined in AASB 112? As the objective paragraph of AASB 112 points out, “the principal issue in accounting for income taxes is how to account for the current and future tax consequences of: (a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an enterprise’s balance sheet; and (b) transactions and other events of the current period that are recognised in an enterprise’s financial statements.” AASB 112 adopts the general principle “that the current and future tax consequences of all transactions and other events recognised in an entity’s balance sheet give rise to current and deferred tax liabilities and assets”. It is the adherence to this principle that gives rise to the notions of “tax base” and “temporary difference”. Furthermore, it is the need to account for the tax consequences of transactions and other events in the same way as the transactions and other events themselves which means that both the current and future tax effects of transactions passing through profit and loss shall be accounted for in the profit and loss. If only current tax payable is recorded as an expense, the profit for the current year is understated or overstated by the amount of tax (benefit) to be paid or received in future years. Similarly, in the years that the tax or benefit on these transactions is paid or received income tax expense will include amounts relating to prior periods and therefore be understated or overstated. To illustrate, consider an entity with accrued interest of $12 000 at balance date. Assuming accrued interest is deductible only when paid, taxable profit will be $12 000 greater than accounting profit, resulting in $3 600 extra tax being paid (assuming a 30% tax rate).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/10/2012 for the course FINS 3616 taught by Professor Curry during the Three '10 term at University of New South Wales.

Page1 / 63

PracticeQuestions_All_Weeks_02_to_07 - ACCT2542 Corporate...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online