acyfar5 income taxes

1. It is the income for a period determined in accordance with the rules established by tax authorities upon which income taxes are payable or recoverable.

A. Accounting income.

B. Accounting income subject to tax.

C. Taxable income.

D. Net income.

Hint: It is the basis of tax authorities in computing income tax duties.

c

2. It is the income for a period before deducting tax expenses

A. Accounting income.

B. Taxable income.

C. Gross income.

D. Net income.

Hint: It is also known as financial income, pre-tax income, or income before tax.

a

3. The taxable income of a corporation differs from pretax financial income because of:

Permanent      Temporary

differences      differences

A. NO                  NO

B. NO                  YES

C. YES                YES

D. YES                 NO

c

4. In accordance with IAS 12, it is the total amount included in the determination of profit or loss for the period.

A. Current tax expense.

B. Deferred tax expense.

C. Income tax expense.

D. Deferred tax benefit.

c

5. In accordance with IAS 12, this is the amount of income taxes payable/recoverable in respect of the taxable profit/loss for a period.

A. Current tax expense. 

B. Deferred tax expense. 

C. Income tax expense. 

D. Deferred tax benefit.

Hint: The income tax computed based on taxable income results in this.

a

6. It is the amount of income tax payable with respect to taxable income.

A. Current tax expense. 

B. Total income tax expense. 

C. Deferred tax expense. 

D. Deferred tax benefit. 

Hint: The income tax computed based on taxable income results in this.

a

7. Which of the following items do not have future tax consequences? 

A. Life insurance premium paid, and the entity Is the beneficiary of the insurance policy.

B. Life insurance premium paid, and the entity is not the beneficiary of the insurance policy. 

C. Fines, penalties, and/or surcharges for violations of laws. 

D. Charitable contributions in excess of tax limitation. 

E. Choices A, C, and D. 

F. Choices B, C, and D.

Hint: Permanent differences do not have future tax consequences.

e

8. These differences will result in future taxable amounts when determining taxable income for future periods.

A. Temporary differences 

B. Taxable temporary differences 

C. Deductible temporary differences 

D. Permanent differences

Hint: These are deducted from the accounting income in computing for the taxable income.

b

9. These are differences that result in future deductible amounts in determining taxable income in future periods.

A. Taxable temporary differences 

B. Deductible temporary differences 

C. Taxable temporary and permanent differences 

D. Deductible temporary and permanent differences

Hint: These are added to the accounting income when computing for the taxable income.

b

10. The amount attributed to an asset or liability for tax purposes is called the: 

A. Carrying amount 

B. Measurement base 

C. Taxable amount 

D. Tax base

d

11. A temporary difference occurs when a revenue item is reported for tax purposes in a period: 

After it is reported in              Before it is reported  

financial income                     in financial income  

A. Yes                                               Yes

B. Yes                                                No 

C. No                                                Yes

D. No                                                  No 

Hint: Temporary differences include timing differences. These are income and expense items recognized for accounting purposes in one period but recognized for tax purposes in another period (or vise versa).

a

12. Which of the following will not result in a temporary difference? 

A. Product warranty liability. 

B. Advance rental receipts.

C. Installment sales. 

D. All of these will result in a temporary difference. 

d

13. Which of the following differences would result in a future taxable amount?

I. Expenses or losses that are deductible before they are recognized in accounting income. 

II. Expenses or losses that are deductible after they are recognized in accounting income. 

III. Revenues or gains that are taxable before they are recognized in accounting income. 

IV. Revenues or gains that are taxable after they are recognized in accounting income. 

A. I and III. 

B. I and IV. 

C. II and III. 

D. II and IV.

b

14. Which of the following differences would result in a future deductible amount?

I. Expenses or losses that are deductible before they are recognized accounting income. 

II. Expenses or losses that are deductible after they are recognized in accounting income. 

III. Revenues or gains that are taxable before they are recognized in accounting income. 

IV. Revenues or gains that are taxable after they are recognized in accounting income. 

A. I and III. 

B. I and IV. 

C. II and III. 

D. II and IV.

c

15. Which of the following would result in reporting a deferred tax liability? 

A. Interest income on government bonds. 

B. Accrual of warranty expense. 

C. Excess of accounting depreciation over tax depreciation. 

D. Excess of tax depreciation over accounting depreciation. 

E. Subscription received in advance.

d

16. Which of the following situations creates a future taxable amount? 

A. Service fees collected in advance from customers. 

B. Accrued compensation costs for future payments. 

C. Accelerated depreciation for financial reporting and straight-line depreciation for tax reporting. 

D. Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting. 

E. Investment costs incurred to obtain tax-exempt income (not tax deductible). 

d

17. Which of the following circumstances does not give rise to a taxable temporary difference? 

A. Interest revenue is received in arrears and is included in accounting profit on a time-apportionment basis, but it is also included in taxable profit on a cash basis. 

B. Revenue from the sale of goods is included In accounting profit when goods are delivered but is included in taxable profit only when cash Is collected. 

C. The taxation depreciation rate is greater than the accounting rate. 

D. Income is deferred in the statement of financial position but has already been included in taxable profit in current or prior periods. 

E. None of the foregoing circumstances.

d

18. Which of the following would result in reporting a deferred tax asset? 

A. Tax, penalty, or surcharge for a violation of law. 

B. Dividend received on equity investment. 

C. Excess tax depreciation over accounting depreciation. 

D. Rent paid in advance. 

E. Rent received in advance. 

e

19. Statement I: Examples of taxable temporary differences are subscriptions received in advance and advance rental receipts. 

Statement II: Taxable temporary differences will result in taxable amounts in future years when the related assets (or liabilities) are recovered (or settled). 

A. Statement I is true, and Statement II is false. 

B. Statement I is false, and Statement II is true. 

C. Both statements are true. 

D. Both statements are false.

b

20. Statement I: Permanent differences do not give rise to future taxable or deductible amounts. 

Statement II: Companies must consider presently enacted changes in the tax rate that become effective in future years when determining the tax rate to apply to existing temporary differences. 

A. Statement I is true, and Statement II is false. 

B. Statement I is false, and Statement II is true. 

C. Both statements are true. 

D. Both statements are false.

c

21. It is the deferred tax consequence attributable to a taxable temporary difference. 

A. Current tax liability 

B. Current tax asset 

C. Deferred tax liability 

D. Deferred tax asset

Hint: Taxable temporary differences give rise to

c

22. It is the deferred tax consequence attributable to a deductible temporary difference and operating loss carryforward. 

A. Current tax liability 

B. Current tax asset 

C. Deferred tax liability 

D. Deferred tax asset

d

23. A deferred tax asset is recognized for deductible temporary differences and operating loss carryforward when:

A. It is probable that taxable income will be against which the deferred tax asset can be used. 

B. It is probable that accounting income will be available against which the deferred tax asset can be used. 

C. It is possible that taxable income will be available against which the deferred tax asset can be used. 

D. It is possible that accounting income will be available against which the deferred tax asset can be used.

a

24. Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the statement of financial position if: 

A. It is probable that a future tax rate change will occur. 

B. it appears likely that a future tax rate will be greater than the current tax rate. 

C. The future tax rates have been enacted into law. 

D. it appears likely that a future tax rate will be less than the current tax rate.

c

25. The deferred tax expense will be the: 

A. increase in the balance of deferred tax assets minus the increase in balance of deferred tax liability. 

B. increase in the balance of deferred tax liability minus the increase in balance of deferred tax assets. 

C. increase in the balance of deferred tax assets plus the increase in balance of deferred tax liability. 

D. decrease in the balance of deferred tax assets minus the increase in balance of deferred tax. liability.

b

26. Recognition of tax benefits in the loss year due to a loss carryforward requires the establishment of: 

A. deferred tax asset equal to the loss carryforward times the tax rate. 

B. deferred tax asset to the extent realizable. 

C. deferred tax liability equal to the loss carryforward times the tax rate. 

D. current income tax asset to the extent realizable. 

E. only a note to the financial statements. 

Hint: These are recognized only to the extent that it is probable that sufficient taxable income will be available to utilize carryforward of unused tax credits and unused tax losses.

b

27. Statement I: A deferred tax asset represents the increase in taxes refundable in future years as a result of deductible temporary differences existing at the end of the current year. 

Statement II: A company should add a decrease in deferred tax liability to income tax payable in computing income tax expense. 

A. Statement I is true and Statement II is false. 

B. Statement I is false and Statement II is true. 

C. Both statements are true. 

D. Both statements are false.

a

28. In 2023, Stefan Inc. decided to incorporate a 2-year warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2023, Stefan Inc. incurs which of the following?

A. An increase in a deferred tax asset.

B. a decrease in a deferred tax asset.

C. an increase in a deferred tax liability.

D. a decrease in a deferred tax liability.

Hint:

Accounting treatment: Warranty expenses are accrued in the financial statements as they are matched with the related sales, even if claims have not yet been settled.

Tax treatment: Warranty costs are tax deductible only when claims are settled (cash basis).

a

29. Which statement is/are correct concerning tax assets and liabilities? 

A. Deferred tax assets and liabilities shall not be discounted.

B. Tax assets and liabilities shall be presented separately from other assets and liabilities in the statement of financial position.

C. When an entity makes a distinction between current and noncurrent assets and liabilities, it shall classify deferred tax assets and liabilities as noncurrent. 

D. All of these statements are correct.

d

30. At year-end, Mohawk Co. had a deferred tax liability, which exceeded the deferred tax asset that is expected to reverse in the subsequent year. Which of the following should be reported in the statement of financial position at year-end? 

A. The deferred tax liability as a noncurrent liability.

B. The deferred tax liability as a current liability.

C. The excess of the deferred tax liability over the deferred tax asset as a noncurrent liability.

D. The excess of the deferred tax liability over the deferred tax asset as a current liability

a

31. On its tax return at the end of the current year, Music, Inc. has P2 million in tax depreciation in excess of depreciation in its income statement. A note disclosure reveals that P500,000 of the P2 million difference will reverse itself next year, and the remainder will reverse over the next three years. In the absence of other temporary differences in the statement of financial position at the end of the current year, the entity would report:

A. a noncurrent deferred tax asset.

B. a noncurrent deferred tax liability.

C. both a current deferred tax asset and a noncurrent deferred tax asset.

D. both a current deferred tax liability and a noncurrent deferred tax liability.

Hint: Tax depreciation is the depreciation expense allowed by tax authorities for income tax purposes. It represents the allocation of the cost of an asset over its useful life, but it often follows specific rules or methods prescribed by tax laws rather than accounting standards.

b

32. It relates to the allocation of income tax expense during the period to various items of income or other sources that brought about the tax.

A. Retained earnings.

B. Interperiod tax allocation.

C. Intraperiod tax allocation. 

D. Income tax payable.

c

33. Interperiod tax allocation results in a deferred tax liability from:

A. an income item partially recognized for financial purposes but fully recognized for tax purposes in any one year.

B. the amount of deferred tax consequences attributed to temporary differences that result in net deductible amounts in future years.

C. an income item fully recognized for tax and financial purposes in any one year.

D. the amount of deferred tax consequences attributed to temporary differences that result in net taxable amounts in future years.

d

*34. Interperiod income tax allocation procedures are appropriate when:

A. An extraordinary loss will cause the amount of income tax expense to be less than the tax on ordinary net income.

B. An extraordinary gain will cause the amount of income tax expense to be greater than the tax on ordinary net income.

C. Differences between net income for tax purposes and financial reporting occur because tax laws and financial accounting principles do not concur on the items to be recognized as revenue and expense.

D. Differences between net income for tax purposes and financial reporting occur because, even though financial accounting principles and tax laws concur on the item to be recognized as revenues and expenses, they don't concur on the timing of the recognition.

d

*35. Statement I: IAS 12 permits offsetting of current tax assets and current tax liabilities only if the entity has a legally enforceable right and intention to settle/realize the recognized amounts.

Statement II: IAS 12 permits offsetting of deferred tax assets and liabilities only if the entity has a legally enforceable right to offset current tax asset against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority.

A. Statement I is true, and Statement II is false. 

B. Statement I is false, and Statement II is true.

C. Both statements are true.

D. Both statements are false.

c