Financial Accounting 3

Topics: Pension, Tax, Cash balance plan Pages: 8 (1650 words) Published: October 30, 2014
FINANCIAL ACCOUNTING III – ACCT 3018

ASSIGNMENT 1
DUE :
TOTAL MARKS = 50

QUESTION 1
Marks=10
Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences OR temporary differences. For temporary differences, indicate whether they will create future tax assets or future tax liabilities

1.Advance rental receipts
Temporary difference, deferred tax asset

2.Membership costs in a health club
Permanent difference

3.Estimated future warranty costs
Temporary difference, deferred tax asset

4.Excess of contributions over pension expense
Temporary difference, deferred tax liability

5.Expenses incurred in obtaining tax-exempt revenue
Permanent difference

6.Instalment sales
Temporary difference, deferred tax liability

7.Excess CCA over accounting amortization
Temporary difference, deferred tax liability

8.Long term construction contracts
Temporary difference, deferred tax liability

9.Premiums paid on life insurance of offices (company is the beneficiary) Permanent difference

10.Interest penalty for late submission of income tax balance Permanent difference

QUESTION 2
Marks=3
There are four types of temporary differences. For each type (1) indicate the cause of the difference (2) give an example and (3) indicate whether it will create a taxable or deductible amount in the future.

(1) Revenues or gains are taxable after they are recognized in pretax financial income. Examples is installment sales, it results in future taxable amounts.

(b) Revenues or gains are taxable before they are recognized in pretax financial income. Examples is prepaid rent, it results in future deductible amounts.

(c) Expenses or losses are deductible before they are recognized in pretax financial income. Example is prepaid expenses, it results in future taxable amounts.

(d) Expenses or losses are deductible after they are recognized in pretax financial income. Examples is warranty expenses, it results in future deductible amounts.

QUESTION 3
Marks=2
Describe a Future tax asset. When a future tax asset should be written down

It’s an asset that is used to reduce the amount of tax that a company will have to pay in a later tax period. It is often associated with a loss carryover, and is used as a future write-off if the next tax period is expected to produce positive earnings.

QUESTION 4
Marks=3
Explain what a taxable temporary difference is and why a future tax liability is recognized.

It’s the differences between the carrying value of an asset or liability and its tax base. When the assets is recovered or liability is settled in the future for an amount equal to its carrying value, taxable income of that future period will be increased. Because taxes arise in the future as a result of reversible differences existing at the statement of financial position date, the future income tax consequence of these taxable amounts are recognized in the current period as a deferred tax liability,

QUESTION 5
Marks=2
Apply accounting procedures for a tax loss carryback

When a business reports operating expenses on its tax return that exceed its revenues, a net operating loss has been created. The loss can be used in some other tax reporting period as an offset to taxable income, which reduces the tax liability of the reporting entity. Carry the amount back to the preceding 3 tax years and apply it against any taxable income, which can generate an immediate tax rebate.

Question 6.
Marks=4
Briefly explain the following terms:
(a)Service cost
It’s the cost of benefit to be provided in future in exchange for service in the current period.

(b)Interest cost
It’s the interest for the period on the defined benefit obligation outstanding during the period. It’s calculated by applying a single rate to the beginning balance of the...
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