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- February 26, 2017 at 6:25 am #374254
Hi sir , im having trouble with question 29 and question 30 of the MCQs of september 2016 exam.
For question 29:
Corporate headquaters Revaluation gain
= $2.5m – $2m
= $ 0.5m
Sales office revaluation loss
= $500 000 – $400 000
= $100 000But it’s not stated in the question,that this revaluation gain/loss will give rise to a defered tax. Therefore, it will have no impact on the income tax expense right? But why is the answer C ? Could you explain sir ?
For question 30:
I have no clue on how to deal with this question. Could you guide me sir?February 26, 2017 at 9:02 am #374280“But it’s not stated in the question,that this revaluation gain/loss will give rise to a defered tax.”
I can only assume that you are meant to interpret the question of a revaluation as having a deferred tax implication
If there were no deferred tax implications, then only the impairment of the office space would have an affect on the income tax expense and, in that case, the answer would be C, a decrease of taxation expense of 30% x $100,000
Now, consider the situation where there is NO deferred tax implication
Then the increase in the value of the property will not affect the taxation expense so … the answer is still C
OK?
This next part deserves a separate thread!
In the tax computation, the accountant will make the adjustment to include $200,000 as a tax allowable expense and that will reduce the tax charge for the year by $200,000 x 30% = $60,000
That $200,000 is capitalised and, once the project is completed, that asset will be used up over its estimated useful life and be written off (amortised) over that period
But we’ve already had the benefit of tax allowances in the calculation above.
So whilst we are charging amortisation to future years’ profits in the financial statements, that amortisation will not be allowed to be claimed as a tax deductible expense against those future years’ profits
Thus a deferred tax liability arises where we claim as deductible today (for tax reasons) expenditure that we shall be amortising in the future (for financial statement reasons)
OK?
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