UNIVERSITY OF GHANA BUSINESS SCHOOL
DEPARTMENT OF ACCOUNTING
LEVEL 300
FINANCIAL REPORTING
IAS 12
TUTORIAL QUESTIONS
Question one
WS prepares its financial statements to 30 June. The following profits (before tax)
were recorded from 20X1 to 20X3:
20X1 $100,000
20X2 $120,000
20X3 $110,000
The entity provides for tax at a rate of 30% and incorporates this figure in the yearend accounts. The actual amounts of tax paid in respect of 20X1 and 20X2 were
$28,900 and $37,200.
Required: Prepare extracts from the statement of profit or loss and statement of
financial position of WS for each of the 3 years, showing the tax charge and tax
liability.
Question two
A piece of machinery cost $500. Tax depreciation to date has amounted to $220 and
depreciation charged in the financial statements to date is $100. The rate of income
tax is 30%.
Required:
What is the deferred tax liability in relation to this asset?
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Question three
Tamsin Co’s accounting records show the following:
Income tax payable on current year profits $60,000
Over-provision in relation to the previous year $4,500
Opening provision for deferred tax $2,600
Closing provision for deferred tax $3,200
Required:
What is the income tax expense that will be shown in the statement of profit or loss
for the year?
Question four
The following information has been extracted from the accounting records of Clara
Co:
Estimated income tax for the year ended 30 September 20X0 $75,000
Income tax paid for the year ended 30 September 20X0 $80,000
Estimated income tax for the year ended 30 September 20X1 $83,000
Required
Determine the figures that will be shown as an expense in the statement of profit or
loss for the year ended 30 September 20X1 and as a liability in the statement of
financial position as at that date in respect of income tax.
Question five
On 1 January 20X8 Simone Co decided to revalue its land for the first time. A
qualified property valuer reported that the market value of the land on that date was
$80,000. The land was originally purchased 6 years ago for $65,000. The required
provision for income tax for the year ended 31 December 20X8 is $19,400. The
difference between the carrying amounts of the net assets of Simone (including the
revaluation of the land above) and their (lower) tax base at 31 December 20X8 is
$27,000. The opening balance on the deferred tax account was $2,600. Simone’s
rate of income tax is 25%.
Required: Prepare extracts of the financial statements to show the effect of the
above transactions.
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Question six
A company’s financial statements show profit before tax of $1,000 in each of years
1, 2 and 3. This profit is stated after charging depreciation of $200 per annum, due
to the purchase of an asset costing $600 in year 1 which is being depreciated over
its 3-year useful life on a straight line basis. The tax allowances granted for the asset
are:
Year 1 $240
Year 2 $210
Year 3 $150
Income tax is calculated as 30% of taxable profits. Apart from the above
depreciation and tax allowances there are no other differences between the
accounting and taxable profits.
Required:
(a) Ignoring deferred tax, prepare statement of profit or loss extracts for each of
years 1, 2 and 3.
(b) Accounting for deferred tax, prepare statement of profit or loss and statement of
financial position extracts for each of years 1, 2 and 3.
Question seven
Simple has estimated its income tax liability for the year ended 31 December 20X8
at $180,000. In the previous year the income tax liability had been estimated as
$150,000.
Required:
Calculate the tax expense that will be shown in the statement of profit and loss for
the year ended 31 December 20X8 if the amount that was agreed and settled with
the tax authorities in respect of 20X7 was:
(a) $165,000
(b) $140,000.
Question eight
(a) Distinguish between current tax and deferred tax.
(b) Distinguish between permanent differences and temporary differences.
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(c) Explain how temporary differences between accounting profits and taxable
profits would affect the tax expense shown in an entity's financial statements unless
deferred tax were considered.
Question nine
Otlay Ltd prepares accounts to 31 July each year. The company's financial
statements for the year to 31 July 2018 showed a liability for current tax of
£120,000. This was an estimate of the current tax due for the year to 31 July 2018.
The following information is also available:
(a) The current tax due for the year to 31 July 2018 was finally agreed with the tax
authorities to be £127,000 and this sum was paid on 1 May 2019.
(b) The company estimates the amount of current tax due for the year to 31 July
2019 to be £140,000.
Prepare a current tax ledger account for the year to 31 July 2019, showing the
amount of the current tax expense for that year and the amount of the current tax
liability as at the end of the year.
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