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Chapter 19: Q5IFRS (page 1114)

Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

Short Answer

Expert verified

The nature of deferred tax accounts must be evaluated and classed as net current or net non-current, then total amount of current deferred tax and finally deferred tax amount is reported as non-current assets or liability.

Step by step solution

01

Meaning of IFRS

International Financial Reporting Standards are a collection of accounting standards produced by the International Accounting Standards Board, a non-profit organization (IASB). It is a collection of globally agreed accounting standards that lays out the rules and procedures.

02

Explaining the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.

The classification has to be done as follows:

  1. Assign a current or noncurrent status to the deferred tax amount. If an amount is tied to a specific asset or obligation, it must be categorized. Still, if it is not, it must be classified based on the temporary difference's predicted reversal date.
  2. Calculate the total amount of different current deferred tax assets and liabilities to arrive at the net current amount. If the net current amount is an asset, report it as a current asset on the balance sheet; if it is a liability, report it as a current liability.
  3. Determine the total amount of different noncurrent deferred tax assets and liabilities to arrive at the net noncurrent amount. If the net noncurrent amount is an asset, report it as a noncurrent asset on the balance sheet; if it is a liability, report it as a noncurrent liability.

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Most popular questions from this chapter

In 2017, Amirante Corporation had pretax financial income of \(168,000 and taxable income of \)120,000. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2017.

Addison Co. has one temporary difference at the beginning of 2017 of \(500,000. The deferred tax liability established for this amount is \)150,000, based on a tax rate of 30%. The temporary difference will provide the following taxable amounts: \(100,000 in 2018, \)200,000 in 2019, and $200,000 in 2020. If a new tax rate for 2020 of 20% is enacted into law at the end of 2017, what is the journal entry necessary in 2017 (if any) to adjust deferred taxes?

Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter reports depreciation expense for certain machinery purchased this year using the modified accelerated cost recovery system (MACRS) for income tax purposes and the straight-line basis for financial reporting purposes. The tax deduction is the larger amount this year. Dexter received rent revenues in advance this year. These revenues are included in this year’s taxable income. However, for financial reporting purposes, these revenues are reported as unearned revenues, a current liability. Instructions (a) What are the principles of the asset-liability approach?

Explain the difference between pretax financial income and taxable income.

The following information was disclosed during the audit of Elbert Inc. 1. Amount Due Year per Tax Return 2017 \(130,000 2018 104,000 2. On January 1, 2017, equipment costing \)600,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.) 3. In January 2018, \(225,000 is collected in advance rental of a building for a 3-year period. The entire \)225,000 is reported as taxable income in 2018, but \(150,000 of the \)225,000 is reported as unearned revenue in 2018 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2019 and 2020. 4. The tax rate is 40% in 2017 and all subsequent periods. (Hint: To find taxable income in 2017 and 2018, the related income taxes payable amounts will have to be “grossed up.”) 5. No temporary differences existed at the end of 2016. Elbert expects to report taxable income in each of the next 5 years. Instructions (a) Determine the amount to report for deferred income taxes at the end of 2017, and indicate how it should be classified on the balance sheet. (b) Prepare the journal entry to record income taxes for 2017. (c) Draft the income tax section of the income statement for 2017, beginning with “Income before income taxes.” (Hint: You must compute taxable income and then combine that with changes in cumulative temporary differences to arrive at pretax financial income.) (d) Determine the deferred income taxes at the end of 2018, and indicate how they should be classified on the balance sheet. (e) Prepare the journal entry to record income taxes for 2018. (f) Draft the income tax section of the income statement for 2018, beginning with “Income before income taxes.”
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