MFRS 112 Income Taxes

Which of the following journal entries correctly records the current income tax expense for the period?

• Debit: Tax liability (statement of financial position) Credit: Tax charge (statement of profit or loss)

• Debit: Tax charge (statement of profit or loss) Credit: Tax liability (statement of financial position)

• Debit: Tax charge (statement of profit or loss) Credit: Cash

• Debit: Cash Credit: Tax liability (statement of financial position)

The (a)   of an asset or liability is the amount attributed to that asset or liability for tax purposes.

(NON-CAPITAL LETTER)

Under MFRS 112, when can a deferred tax asset arising from unused tax losses be recognized in the financial statements?

• Always, as long as tax losses exist

• Only when the company has had taxable profits in the past

• When it is probable that future taxable profit will be available to utilize the losses

• Only if the losses do not expire

Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period.

• TRUE

• FALSE

Deferred tax is an (a)   used to match the tax effects of transactions with their accounting impact.

(NON-CAPITAL LETTER)

Company James has unused tax losses of RM400,000. Management expects to generate taxable profits of only RM150,000 over the next three years. The tax rate is 25%. What amount of deferred tax asset should be recognised?

• RM100,000

• RM62,500

• RM37,500

• RM150,000

Answer explanation

Expected taxable profits RM 150000

Tax rate 24%

Deffered Tax Assets (DTA) = Expected taxable profits x Tax Rate

DTA = RM 150000 x 24%

= RM 37 500

A "taxable temporary difference" will typically result in what in the future?

• A reduction in future taxable profit.

• A refund from the tax authority.

• A deferred tax liability.

• A deferred tax asset.

A temporary difference arises when the accounting depreciation and the tax depreciation occur at different rates for __.

• Inventory

• Trade receivables

• Property, plant and equipment

• Cash and cash equivalent

XYZ Berhad bought a piece of land for RM300,000. On 31 December 2025, the land is revalued to RM500,000 in the financial statements. For tax purposes, revaluations are not recognized, so the tax base remains at RM300,000. The corporate tax rate is 24%. What is the deferred tax effect to be recognized as at 31 December 2025?

• No deferred tax, because land is not depreciated

• Deferred Tax Asset of RM48,000

• Deferred Tax Liability of RM200,000

• Deferred Tax Liability of RM48,000

Answer explanation

Temporary difference =

RM500,000 - RM300,000 = RM200,000

Tax rate = 24%

Deffered tax liability =

RM200,000 x 24% = RM48,000

So the company must record RM48,000 as a future tax it expects to pay.

An example of deductible temporary difference is :

• Accrued income

• Provision for warranty cost

• Accelerated tax depreciation

• Revaluation surplus