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Hi.
I am having great dificulty in understanding this q related to the deferred tax.although i have correctly attempted other kit q relevant to deferred tax.but may be i still havnt got the basic idea…can you please help me with its adjustments (1) to (4).
thanks.Just adjustments 1 to 4 eh? That’s basically the whole question apart from goodwill and tax?
I’m really sorry but ….. there’s no way I can sit and type a 45 minute answer.
You’ve got three possible courses of action!
1. Go through the question again with the answer open and see if there is any particular point which has you TOTALLY confused
2. Take each point in turn, think about the amendments necessary, and then check to see if your attempt was anywhere near the printed solution, or
3. Start praying now that it doesn’t come up next week!
If you do either of the first two choices, and you are still having problems, post again with a specific problem!
well that was my first ever post on open tuition, wasn’t expecting any response.so thanks for responding.
ok can you please guide me if iam right or wrong here.in the 1st adjustment the tax base of the financial asset is 9 as it is the cost of it but the carrying value being 10.5 gives a taxable temporary difference.right?a loan payable has tax base equal to carrying value. and thats why in the q as the loan had equity element the CV was reduced below the TB(tax base) right?
my last q is that why an accrued expense never deductible for tax purpose and accrued income never taxable?. i,ve totally tried to be specific.i hope you’ll answer.thanks.
Hi
Number 1, you can see that the market value is greater than carrying value by $1,500. This means that, on ultimate sale of this asset, a gain of $1,500 will be achieved …. and that gain will attract tax. That’s why we need to increase the deferred tax liability.
Number 2! The tax base of the loan remains at $10,000 but, for accounting purposes and for presentation in the financial statements we are required to split the loan element from the equity element in a compound instrument.
Number 3! Tax authorities tend to work on a cash basis rather than an accruals basis. I’m no tax expert but I’m prepared to say that substantially the whole of the tax rules revolve around taxing revenues when they are received and allowing expenses when they are actually paid ( or suffered )
Hope these help
and good luck next week
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