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can you help me with the following: i do not know how to classify whether it is a deffered tax or liability.
share options
An entity, Splash has established a share option scheme for its 4 directors commencing 1/7/2008. Each director will be entitled to 25000 share options on condition that they remain with Splash for 4 years, from the date the scheme was introduced.FV of option at grant date $10
FV of option at 30/6/2009 $12
Exercise price of option $5The MV or FV of shares at 30/6/2009 was $7 per share. Tax allowances on any expense recognised for share options are only granted at the date when options are exercised and will be based upon the intrinsic value of the options. Tax 30%
Calculate for the yr end 30/6/9
Yr end 30/6/9
4 x 25000 x $10 x 1/4 = $250,000.> P/LYr end 30//6/2010
4 x 25000 x $10 x 2/4 = $500,000> P/LOn 30/6/2009-? 4 x 25000 x (17-5) x ¼ = $300,000
$300,000 @30% = $90,000 is DT asset, tax is recognised when the options are actually exercised. why DT asset? i dont understand. I would think that the entity has paid tax on $300,000 which should have been 250,000 so deferred tax asset, is this correct?Inventory
On 30/6/2001, the complex group acquired a new sub, at the date of acquisition the sub had inventory that was shown in FS at a CA of $50,000. The group assessed the fair amount of the inventory of $55,000. Tax @ 30%.Solution:
$5,000 additional needs to be taxed.
CV $50,000
Tax purposes $55,000
Temp diff $5,000DT liability $1500 CR & DR COS
if i was using that assumption that i used above, the entity has paid tax on 55,000 rather 50,000, would this not be DT asset too? i am really confused
you have not answered this question, you told me to post on sunday, as you didn’t have the Kaplan book with you.
Thanks again
Hi Kerri
There were two posts from you (one where “Kaplan” was spelt “Kapla” and one where it was correctly spelt.)
If you can’t find it, post again please
Hi
The higher the value of the closing inventory, the lower the cost of sales, the higher the profit
The company has paid tax on profit in which cost of sales is reduced by $55,000 closing inventory value but the company has carried at a value of $50,000
But last year’s closing inventory is this year’s opening inventory so although last year’s cost of sales figure has been reduced by the $5,000 temporary difference, that $5,000 will increase this year’s cost of sales figure.
So the temporary difference will be reversed and that 30% tax will have to be paid
Is that better?
i still don’t understand. I thought we paid more tax 55,000 rather than 50,000, im still confused. also you have not answered me about the share options questions as above posted.
see if a company enters into a contract, does this fall under ifrs 2, or is ifrs 2 just for issue of shares to employees?
I really have explained that in my previous post
If closing inventory is valued by the srs at 55,000 where we believe it to be 50,000, then we have paid tax on an increased profit amount (increased because closing inventory is higher and therefore cost of sales is lower therefore profit is higher – and we’ve paid tax on that higher profit)
But the 55,000 then becomes an integral element of next year’s cost of sales calculation by way of addition to next year’s purchases. so next year’s profits will be reduced because of the higher cost of sales so we’ll pay tax on a decreased profit figure
Is THAT better?
The same principle applies with the share option expense – 300,000 has been deducted from profits so profit is lower when compared with our figure of 250,000 deduction.
So, in fact, we’ve paid on a reduced profit figure and leaves us with a deferred tax liability
OK?
i don’t know why the answers say its deferred tax asset for the share options?
the profit on 55000 has been paid, the 5000 will increase the opening stock next year so deferred tax liability? I just think that unrealized profit should be deferred tax asset, as profit already been paid?
Tax has been paid on a REDUCED profit amount having taken account of 55,000 closing inventory instead of 50,000. Where the closing inventory amount has been taken as 55,000 by the taxman, cost of sales is 5,000 higher and profit lower.
so we have paid tax on additional 5,000 and that has created a deferred tax asset because next year the accounting profits according to the taxman will be 5,000 lower …. because the opening inventory value according to the taxman is 5,000 higher than we think (we believe that it should be only 50,000)
Oooooh – it’s so difficult to get across when I can’t wave my arms, look you in the eye and persuade you of the logic!
is that any better now?
thanks for your help. I agree with this. The Kaplan answers got me confused as it says its deferred liability.
I believe I use same method for share options which indeed should be DT asset too
Thanks for your patience 🙂
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