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How do we calculate INCOME TAX PAYABLE Take the enacted tax rate and multiply it
with the taxable income listed in the question.<br><br>&nbsp;NOT ACCOUNTING INCOME
What is the journal entry to record Income Tax Paybale in the Taxes Payable Method
Debit. Income Tax Expense<br>Credit. Income Tax Payable<br><br>No need to add
CURRENT in the iteam as there is only one tax account
What are the two accounting methods for Tax? How does the two accounting systems
work for Income Tax under IFRS and ASPE 1. Taxes Payable Method:<br><ul><li>CAN
select under ASPE, YOU CANNOT under IFRS</li></ul><div>2. Temporary Difference
Method:</div><div><ul><li>CAN select under ASPE, YOU MUST SELECT UNDER
IFRS</li></ul></div><br>
What is Taxes Payable Method?
You calculate the income tax payable off taxable
income after adjusting for the temporary/permanent differences
Are permanent differences treated the same under Taxes Payable Method and Temporary
Difference Method
YES - NON TAXABLE BOTH WAYS AND ADDED BACK TO ACCOUNTING
INCOME BOTH WAYS
Examples of Revenue or Gain AFTER they are recognized in ACCOUNTING INCOME
<ul><li>Subscriptions, Royalties (basically unearned revenue)</li><li>This is
because the CASH is received afterwards, not in the accounting period</li></ul>
Examples of Revenue or Gain BEFORE they are recognized in ACCOUNTING INCOME
<ul><li>Installment Sales, percentage of completion contracts (cash received
after)</li></ul>
Examples of EXPENSES BEFORE they are recognized in ACCOUNTING INCOME
<ul><li>Depreciation VS CCA, Prepaid expenses</li></ul>
Examples of EXPENSES AFTER they are recognized in ACCOUNTING INCOME
<ul><li>Product Warranties, Holding Losses, Accrued Pension Costs</li></ul>
"<div><span style=""font-weight: bold;"">REVENUES,
GAINS, EXPENSES, LOSSES </span>included
in Accounting Income
but <u><span style=""font-weight: bold;"">NEVER</span></u>&nbsp; included in
Taxable Income:</div>" <ul><li>NON TAXABLE REVENUE:<br></li><li>Dividends from
Canadian Corporations and Life Insurance Money Received<br><br></li><li>NON
DEDUCTIBLE EXPENSES:</li><li>Fines or penalties, entertainment expenses like for a
golf club used to host a meeting</li><li>Expenses related to NON TAXABLE REVENUE
like paying life insurance premiums</li></ul>
"<div>What
is the reasoning behind the&nbsp;<span style=""font-weight:
bold;"">Temporary</span>
and <span style=""font-weight: bold;"">Permanent</span>
Differences in calculations?</div>"
Timing Differences are focused
on:<br><ul><li>Adjusting from ACCRUAL to CASH for fairness (taxing when cash is
actually received)</li><li>Removing tax deferral bias ESTIMATES in GAAP with
Depreciation vs CCA</li></ul><div>Permanent Differences are focused
on:</div><div><ul><li>Stimulating investment in Canada (Revenue received from
Dividends is non-taxable so you are getting money tax free from
investments)</li><li>Reducing abuse for entertainment expenses or trying to deduct
CRA fines</li></ul></div>
How are REVENUE temporary differences calculated for taxable income?
Since
REVENUE items, for which you do not get cash from until a later year, is not
taxable. <br><br>This is SUBTRACTED from the ACCOUNTING INCOME. (Temp difference).
Added back to the year when the cash is actually received.
How are EXPENSE temporary differences calculated for taxable income?
<ul><li>EXPENSES that are NOT deductible in the year are ADDED back.</li><li>Only
SUBTRACTED for the year the service was provided for example WARRANTY REPAIRS in a
later year</li></ul>
How are PERMANENT differences treated when calculating taxable income? ADD them
back to the accounting income no matter what year.<br><br>Permanent differences
will always INCREASE the taxable income, therefore it has to be added back.
What happens when a corporation is OWED a Income Tax Refund, what are the Journal
Entries and where on the financial statements do the items go? Debit. Income Tax
Receivable (Current Asset)<br>Credit. Income Tax Benefit (ADDED to accounting
income BEFORE calculating income tax)
<div><strong>Income Statement: How does tax expense affect the statement in each
Taxes Payable vs. Temporary Difference Methods</strong><br></div>
"<ul><li>The starting method for both methods would be the Income Before
Tax</li></ul><div><div><strong>Taxes Payable Method (Only ASPE has this
option)</strong>:</div><ul><li>Only uses ""<strong>Income Tax
Expense/(Benefit)</strong>"". No need for ""current"" in the name. SUBTRACT expense
and ADD benefit<br></li></ul><div><div><strong>Temporary Difference Method (Only
IFRS, Optional ASPE)</strong>:</div><ul><li>Uses ""<strong>Current Income Tax
Expense/(Benefit)</strong>"" to distinguish it from the other account.</li><li>Also
has ""<strong>Deferred Income Tax
Expense/(Benefit)</strong>"".</li></ul></div></div>"
Where do the items go under the BALANCE SHEET under Taxes Payable Method
If
a LIABILITY:<br><ul><li>CURRENT LIABILITY: Income Tax Payable<br></li></ul><div>If
a ASSET:</div><div><ul><li>CURRENT ASSET: Income Tax Receivable (when a tax refund
is received)</li></ul></div>
Where do the items go under the BALANCE SHEET under Temp Difference Method
If
a LIABILITY:<br><ol><li>LONG TERM LIABILITY: Deferred Income Tax
Liability<br></li></ol><div>If an ASSET:</div><div><ul><li>LONG TERM ASSET:
Deferred Income Tax Asset</li></ul></div>
What is the Deferred Income Tax expense based on? What is the definition of this.
All the CHANGES made to either Deferred Income Tax LIABILITY or ASSET during the
accounting period only<br><br>FUTURE tax CONSEQUENCE of a taxable temporary
difference TODAY
How would Deferred Tax Expense be calculated from a Liability in a period? Explain
the journal entry after calculation.
For example, if a company had sales revenue
for $30,000 in a year, they are goin to receive that cash in the future.<br><br>For
the $30,000. We take the enacted tax rate of 25% and multiply it:<br><ul><li>30,000
x 25% = 7,500<br></li></ul><div>The Deferred Income Tax expense for the year is
7,500<br><br>Debit. Deferred Income Tax Expense<br>Credit. Deferred Income Tax
Liability</div>
What happenes to the Deferred Income Liability account during the years cash is
actually received for the Sales Revenue? Explain the Journal Entries for each time
cash is received.
We take the amount of actual cash received (in the next
year it is 20,000).<br><br>Multiply that with the tax rate:<br><ul><li>20,000 x 25%
= 5,000</li></ul><div>When the cash is received and tax is
calculated:<br><ul><li>Debit. Deferred Income Tax Liability (This time reducing the
liability as the impact of future tax lowers)</li><li>Credit. Deferred Income Tax
Benefit</li></ul></div>
How to calculated TOTAL income tax expense from Income Tax Payable and Deferred
Income Tax (what is the formula)<br>
Income Tax Payable = 100<br><br>Deferred
Tax Expense:<br>Deferred Tax Liability/Asset, end of year&nbsp; = 50<br>LESS:
Deferred Tax Liability/Asset, Beginning = (25)<br><br>Total Deferred Tax
Liability/Asset, Total for year = 25<br>
Calculation for TOTAL Deferred Tax Asset or Liability the way the teacher said =
Future Deductible or Taxable amount x Tax Rate<br><ul><li>This calculation is for
each year</li><li>Add all the the amounts to get the total for Deferred Tax
Asset/Liability for the YEAR it was SOLD OR BOUGHT<br>&nbsp; &nbsp; &nbsp;
&nbsp;&nbsp;<br></li></ul>
What is the journal entry for TOTAL Deferred Tax Asset and its ONE-year adjustment?
Total for All Years:<br>Debit. Deferred Tax Asset<br>Credit. Deferred Tax
Benefit<br><br>One Year:<br>Debit. Deferred Tax Expense&nbsp;<br>Credit. Deferred
Tax Asset
What is the journal entry for TOTAL Deferred Tax LIABILITY and its ONE-year
adjustment?
For TOTAL:<br>Debit. Deferred Tax Expense<br>Credit. Deferred Tax
Liability<br><br>For ONE YEAR:<br>Debit. Deferred Tax Liability<br>Credit. Deferred
Tax Benefit
What is the journal entry when there are multiple differences? (Both revenue and
expense in same year)
If LIABILITY &gt; ASSET:<br><ul><li>Debit. Deferred Tax
Expense</li><li>Credit. Deferred Tax Liability<br></li></ul><div>If ASSET &gt;
LIABILITY:</div><div><ul><li>Debit. Deferred Tax Asset</li><li>Credit Deferred Tax
Benefit</li></ul></div>
How to calculate EFFECTIVE tax rate
= Total Income Tax Expense / Accounting
Income
What do you do when there is a tax rate change in the future
Recognize the
increase or decrease in the Deferred Tax Asset/Liability account with a journal
entry
How often is a Deferred Tax Asset account reviewed, what happens when the account
can't generate enough money?
One every year end to determine if any changes need
to be made to the carrying amount<br><br>If it is unlikely that sufficient taxable
income will be generataed from the Income Tax Asset then it may be written down
How should Deferred Tax Assets/Liabilities be reported on B/S by both ASPE and IFRS
IFRS:<br><ul><li>Requires all Deferred Items to be reported as long-term
(non-current)<br></li></ul><div>ASPE:</div><div><ul><li>Future Income Tax items
will be separated based on the timing differences and when they will reverse
(either within a year or longer?)<br></li></ul><div>Under BOTH:<br><ul><li>Deferred
Income Assets/Liabilities can be netted within the SAME corporation</li><li>CANT be
netted in consolidated financial statements</li></ul></div></div>
How to treat Intra-Period tax allocation
Allocated vertically through the
income statement and OCI in a given year
Tax disclosure requirements for IFRS and ASPE
ASPE:<br><ul><li>Limited
disclosures</li></ul><div>IFRS:<br><ul><li>Sources of both current and deferred
income taxes</li><li>Amount of current and deferred income tax recognized in
equity</li><li>Reconciliation of effective tax rates</li><li>Information about
unrecognized Deferred Income Tax Assets</li><li>Information about each tpe of Temp
Difference&nbsp;</li></ul></div>
How do investors view the deferred tax amounts They are often ignored by investors
due to the information being misleading:<br><ul><li>Timing of realization is
questionable</li><li>Mnay are created based on estimates</li><li>They dont
represent a true monetary asset that can be sold or liability that will be
paid</li></ul>
What does it mean when it says the UCC is LOWER than the net carrying amount in the
question?
Seems to be a fancy way of saying CCA &gt;
Depreciation<br><br>Which leads to SUBTRACTING from accounting income
What to do when CCA is HIGHER than the&nbsp; book value depreciation under
IFRS<br><br>Prepare the journal entries "<span style=""color: rgb(255, 255,
255);"">SUBTRACT&nbsp;From&nbsp;the&nbsp;accounting&nbsp;income</span><br>Deferred
tax LIABILITY<br><br>HOW TO CALCULATE:<br>CCA Excess x Tax Rate = Deferred Tax
LIABILITY<br><br>Debit. Deferred Tax Expense<br>Credit. Deferred Tax Liability"
How to handle calculating accounting income FROM taxable income, specifically with
these items<br><br>- Dividend Income<br>- Excess of CCA OVER
depreciation&nbsp;<br>- Unearned rent
STARTING POINT = Taxable
Income<br><ul><li>ADD back dividend income</li><li>ADD back the excess CCA over
depreciation</li><li>SUBTRACT the unearned rent</li></ul><div>ENDING POINT (ANSWER)
= Accounting Income&nbsp;</div>
How to calculate the effective rate off of multiple differences in ONE year
1.
Take the accounting income and multiply by tax rate<br>2. Take the NON DEDUCTIBLE
insurance expense and multiply that with the tax rate<br><br>Divide the tax payable
for each item with the accounting income to get the percentage. THEN WE ADD THE
PERCENTAGES (25% + 0.8% = 25.8%)
What formula do they want you to remember for Tax Base and Deferred Tax Asset
calculation
Tax Base - Carrying Amount = Deductible Temp Difference x Tax Rate
= Deferred Tax Asset&nbsp;
How to calculate the increase in deferred tax when the tax rate increases in the
future?<br><br>For example: 25% in 2020 and then 30% in 2023
First get the
difference in increase, in this case it is 5%<br><br>Multiply the difference with
the year reversible amount the tax rate changed (in this case
2023).&nbsp;<br>(352,000 x 5% = 17,600 increase to TOTAL)
What to do when the company will not realize a certain amount in deferred tax
asset? Prepare the journal entries for both scenarios<br><br>A) Assuming they DO
NOT use a valuation account<br>B) Assuming they DO use a valuation account
A)
DO NOT USE ACCOUNT<br>Debit. Deferred Tax Expense (..amount not
realized..)<br>Credit. Deferred Tax Asset (..amount not realized..)<br><br>B) USE
ACCOUNT<br>Debit. Deferred Tax Expense (..amount not realized..)<br>Credit.
Allowance to Reduce Deferred Tax Asset to Expected Realizable Value (..amount not
realized..)
How is a trademark that is acquired from the government and capitalized over a
period of time treated for tax purposes?
It will be a reversing difference,
and this will be a deferred tax liability
How is a prepaid advertising expense that is deferred for ACCOUNTING purposes and
deducted as an expense for TAX purposes treated?
Reversing difference, and
it is treated as a deferred tax LIABILITY
How to classify between deferred tax LIABILITY vs ASSET LIABILITY:<br><ul><li>If
recovery of an asset or settlement of a liability will result in the company paying
MORE income taxes in the future, then a liability is
recognized<br></li></ul><div>ASSET:</div><div><ul><li>If recovery of an asset or
settlement of a liability will result in the company paying LESS tax in the future,
then asset is recognized</li></ul></div>
How to treat holdings GAINS and LOSSES under deferred tax, not taxable until
realized
GAINS:&nbsp;<br><ul><li>future TAXABLE income</li><li>deferred tax
LIABILITY as it will increase accounting
income<br></li></ul><div>LOSSES:</div><div><ul><li>future
DEDUCTIBE</li><li>deferred tax ASSET as it will lower accounting
income</li></ul></div>