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MikeLittle.
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- March 15, 2017 at 8:43 pm #378397
In December 20X5, Mighty IT Co revalued its corporate headquarters. Prior to the revaluation, the carrying amount of the
building was $2m and it was revalued to $2·5m.
Mighty IT Co also revalued a sales office on the same date. The office had been purchased for $500,000 earlier in the
year, but subsequent discovery of defects reduced its value to $400,000. No depreciation had been charged on the sales
office and any impairment loss is allowable for tax purposes.
Mighty It Co’s income tax rate is 30%.In accordance with IAS 12 Income Taxes, what is the impact of the property revaluations on the income tax
expense of Mighty IT Co for the year ended 31 December 20X5?
A Income tax expense increases by $180,000
B Income tax expense increases by $120,000
C Income tax expense decreases by $30,000
D No impact on income tax expenseI am not unable to understand how they got the answer
The carrying value is 400,000 and since for tax purposes they allow impairment,the tax base is 400000 so there shud be no impact on tax but why the answer is C
March 15, 2017 at 11:20 pm #378404Because we are writing off $100,000 impairment and it’s allowable for tax so it will reduce the tax expense by 30% of $100,000 = $30,000
Is this a past exam question? I don’t recognise it!
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