Deferred Tax MCQ Quiz

Which of the following statements best describes the main objective of IAS 12?

• To prescribe the accounting treatment for inventories.

• To prescribe the accounting treatment for income taxes.

• To prescribe the accounting treatment for property, plant, and equipment.

• To prescribe the accounting treatment for financial instruments.

E Ltd acquired a floor in a building which it would use for its computer department on 1 January 2023 for R10 million. The part of the building was new and unused at the date of purchase. SARS will grant E Ltd an annual allowance of 5% on 55% of the cost of the building. The expected life of the building is 18 years on 1 January 2023. The deferred tax to be recognized on the above transaction at 31 December 2023 is:

• Deferred tax liability of R8 250 on 55% of the cost and R0 on 45% as it is exempt.

• Deferred tax asset of R8 250 on 55% of the cost and R0 on 45% as it is exempt.

• A deferred tax liability of R1 181 444.

• R0 as it is exempt.

• None of the above.

Company ABC has taxable temporary differences of R100 000 and deductible temporary differences of R40 000. None of the temporary differences will be taxed at the CGT rate. What is the net deferred tax liability?

BHC Ltd purchases an admin building for R1 500 000 on 1 January 2023. The building is not new and unused and was not purchased from a seller who was entitled to a s13quin allowance. Therefore, SARS does not allow a s13quin allowance on the building. The useful life of the building is 20 years with a Rnil residual value. Calculate the deferred tax balance on 1 January 2023 and again on 31 December 2023.

• R384 750.

• Rnil, the carrying amount is equal to the tax base.

• Rnil, exempt in terms of Par 12.15(b) of IAS 12.

• R1 425 000

Company X recognizes a provision of R250 000 in the financial statements for the year ended 31 December 2023. The provision is for the possible payment of a legal dispute that could result in liquidation of the company depending on the outcome of the court case. There are no other temporary differences that relate to Company X. Assume SARS will allow the costs as a deduction when the cost is incurred. Company X assesses whether taxable profits will be available against which it can utilize any deductible temporary differences against and concludes that there will be sufficient taxable profits in the future. What would the DTA/DTL effects be from this transaction?

• Rnil, the costs are only deductible once incurred, therefore there is no deferred tax effect.

• R67 500, DTL.

• Rnil, the carrying amount of the provision and the tax base are equal, therefore no temporary difference.

• R67 500, DTA.

Which of the following statements is true in respect of deferred tax liabilities?

• Deferred tax liabilities should be recognised for all taxable temporary timing differences.

• Deferred tax liabilities should only be recognised in relation to items recognised in profit or loss.

• Deferred tax liabilities should only be recognised if there are probable future profits which the entity will be taxed on.

• Deferred tax liabilities should be recognised in respect of all permanent differences.

• None of the above

Which of the following statements is correct in terms of IAS 12 Income Taxes

• A taxable temporary difference is expected to lead to the payment of less tax in the future and gives rise to a deferred tax liability.

• A deductible temporary difference is expected to give rise to more tax payable in the future and gives rise to a deferred tax asset.

• A deductible temporary difference is expected to lead to the payment of less tax in the future and gives rise to a deferred tax asset.

• A taxable temporary difference is expected to give rise to more tax payable in the future and gives rise to a deferred tax liability.

• All of the above.

Calculate the taxable income of Micor Ltd for the financial year ended 31 December 2023.

• R6 400 000

• Rnil

• R5 900 000

• R6 650 000

• Other amount

Assume the correctly calculated current tax of Micor Ltd for the year ended 31 December 2023 is R 1 728 000. Calculate the tax expense of Micor Ltd for the year ended 31 December 2023.

• R1 815 500

• R1 728 000

• R1 756 100

• R87 500

• Some other amount

The deferred tax asset recognised as a result of the assessed loss in 2022 amounted to: