Report Questions

Income Tax
Question #1
The scope of income tax covers:
a. The accounting for domestic and foreign taxes that are based on taxable profit
b. Only the amount of tax payable in respect of taxable profit (loss) for the current or past periods
c. Withholding taxes that are payable by a subsidiary, associate or joint venture on distributions to the
reporting entity
d. Both a and c
Question #2
The tax basis of a liability is:
a. The amount that will be deductible for tax purposes when it recovers the carrying amount of the asset
b. The carrying amount less any amount that will be deductible for tax purposes in respect of that liability
in future periods
c. Measured using the tax rates and laws that have been enacted or substantively enacted by the
reporting date
d. Measured at the amount it expects to pay (recover) using the tax rates and laws that have been
enacted or substantively enacted by the reporting date
Question #3
All the statements are true except for:
a. A DTL is recognized for all temporary differences expected to increase taxable profit in the future
b. A DTA is recognized for all temporary differences expected to reduce taxable profit in the future
c. A DTL is recognized for the carryforward of unused tax losses and unused tax credits
d. Changes in DTA and DTL are recognized as tax expense in profit or loss
Question #4
When it is no longer probable that sufficient taxable profit will be available to allow recovery of the
deferred tax asset, the adjustment is accounted for in the respective standards as:
IFRS for SMEs

Full IFRS

a.

Reduction in carrying amount of DTA

Reduction in carrying amount of DTA

b.

Adjustment in the valuation allowance account

Reduction in carrying amount of DTA

c.

Adjustment in the valuation allowance account

Adjustment in the valuation allowance

account

d.

Reduction in carrying amount of DTA

Adjustment in the valuation allowance

account

Question #5
Modified True or False: When an entity presents current and non-current as separate classifications, it
shall classify any deferred tax assets as current assets.
Question #6
An entity shall offset current tax assets and current tax liabilities, or offset deferred tax assets and

deferred tax liabilities if, and only if, it has a legally enforceable right to set off the amounts.
Question #7
The only difference between an entitys accounting profit and its taxable profit arises from the laws
permitting the cost of a particular type of machinery with a useful life of three years to be fully
deductible for tax purposes in the year of purchase. For financial reporting purposes, the entity
depreciates the machine on a straight-line basis over three years to a nil residual value. The entity
acquired the machine for CU600 on 1 January 20X1. Its accounting profit is CU1,000 for each of the
years 20X120X3. The entity incurs income tax at the rate of 30 per cent of its taxable profit.
Calculate the entitys current tax payable for years 2011, 2012, and 2013.
Question #8
An entity calculates its taxable income to be negative CU9,000 (ie a tax loss of CU9,000) for the tax
period 20X7/20X8 in accordance with the relevant tax rules in its jurisdiction. The tax legislation in the
jurisdiction does not permit entities to carry back tax losses. The tax rate in the jurisdiction is 30 per
cent (assume for simplicity that this is the rate that is expected to apply in the period when the tax loss
of CU9,000 is expected to be usedmeasurement is discussed under paragraphs 29.1829.20).
Calculate the amount to be recognized as a deferred tax asset.
ANSWERS:
1.
2.
3.
4.
5.
6.

7.

8.

D
B.
C.
B.
F; Non-current assets
F; and plans to it (settle on a net basis or to realise the two simultaneously).

Events After Reporting Date

Question #1
The following statements define events after reporting period except:
a. Favorable and unfavorable events
b. Events that occur between end of reporting period until date FS authorized for issue
c. Composed of events that existed at the end of the reporting period and non-adjusting events that arose
after the end of the reporting period
d. Events that occurred during March 31, when the entity has a fiscal year beginning April 1
Question #2
In IFRS for SMEs, the entity should:
Amounts recognized in F/S

Amounts disclosed

a.

Adjust

Not adjust

b.

Not adjust

Not adjust

c.

Adjust

Adjust

d.

Adjust

Not adjust

Question #3
Modified True or False: Dividends declared to holders of its equity instruments after end of RP are
recognized as a liability at end of RP.
Question #4
The following transactions are adjusting events except for:
a. Adjustments of Provision - settlement after end of RP that confirms the entity had a present obligation
at that time
b. Decline in market value of investments
c. Amount of Profit-sharing or Bonus Payments
d. Discovery of Fraud or Errors
Question #5
An entity must disclose the following transactions for events after reporting period except:
a. Date of authorization for issue
b. The nature of the non-adjusting event after the end of the reporting period
c. The financial effect of the adjusting event after the end of the reporting period
d. The power of the entitys owners to amend the financial statements after issue
1.
2.
3.
4.
5.

ANSWERS:
D
C
F; not recognized, amount is segregated in RE
B
C, adjusted not disclosed
Related-Party Disclosures
Question #1
Modified True or False: In considering each possible related party relationship, an entity shall assess
the substance of the relationship and not merely the legal form.

Question #2
The following people are related parties to the reporting entity except:
a. A member of the key management personnel of the reporting entity or of a parent of the reporting entity
b. Two venturers who share joint control over a joint venture
c. A person who has control or joint control over the reporting entity
d. A person who has significant influence over the reporting entity
Question #3
The following are required disclosures for related parties except for:
a. An entity shall disclose the name of its parent and if different, the ultimate controlling party.
b. An entity shall disclose the nature of the related party relationship as well as information about the
transactions.
c. An entity shall disclose all related party transactions in relation to a state (a national, regional or local
government) that has control, joint control or significant influence over the reporting entity.
d. An entity shall disclose key management personnel compensation in total.
Question #5
Modified True or False: A related party transaction is a transfer of resources, services or obligations
between a reporting entity and a related party, if a price is charged.
Question #6
Modified True or False: Section 33 requires an entity to include in its financial statements the
disclosures necessary to draw attention to the possibility that its financial position and profit or loss
have been affected by the existence of related parties and by transactions and outstanding balances
with such parties.
1.
2.
3.
4.
5.

ANSWERS:
T
B
C
F; regardless of whether a price is charged
T
Specialized Activities

Question #1
The following topics are included in Section 34s scope except for:
a. Agriculture
b. Extractive activities
c. Hyperinflation
d. Service concessions
Question #2
An entity measures its biological assets in initial recognition using:
a. The fair value model
b. The cost model for those biological assets for which fair value is readily determinable without undue
cost or effort
c. the fair value model for those biological assets for which fair value is readily determinable without
undue cost or effort
d. The fair value or the cost model, depending on the entitys discretion
Question #3
An entity measures its biological assets whose fair value is not readily determinable at:

Question #4
An entity cultivates cattle for the fresh meat industry. It slaughters its cattle and butchers the meat into
cuts before selling them to its meat wholesaler customers. The entitys statement of financial position at
31 December 20X1 reported cattle at their fair value less costs to sell of CU10,000. At 31 December
20X2, when the fair value less costs to sell of the entitys herd is CU15,000, the entity slaughtered 40
per cent of its herd (10 cattle) incurring slaughter costs of CU50. The quoted price of a carcass is
CU700 and the costs to sell are estimated at CU2 per carcass.
What is the journal entry to recognize the reclassification of slaughtered cattle at the point of harvest?
Question #5
An entity cultivates cattle as livestock for meat and sells the cattle to slaughterhouses. At 31 December
20X0 the fair value less costs to sell of the entitys livestock is CU10,000. At 31 December 20X1 the fair
value less costs to sell of the livestock is CU15,000. The entity neither bought nor sold any cows in
20X1. No calves were born in 20X1.
What is the journal entry to recognise the increase in fair value less costs to sell?
ANSWERS:
1. C
2. C
3. Cost less accumulated depreciation less accumulated impairment losses

4.

5.
Transition to IFRS for SMEs
Question #1
Modified True or False: An entitys first financial statements that conform to this IFRS are the first
quarterly financial statements in which the entity makes an explicit and unreserved statement in those
financial statements of compliance with the IFRS for SMEs.
Question #2

An entitys _______________ to the IFRS for SMEs is the beginning of the earliest period for
which the entity presents full comparative information in accordance with this IFRS in its first
financial statements that conform to this IFRS.
Question #3

Modified True or False: Accounting policies being used in the periods before adoption of IFRS for SMEs
may differ from those used in conformity with the said standard. Because of these, these changes shall
be reflected as adjustment directly in profit or loss.
Question #4
True or False; This section applies to a first-time adopter of the IFRS for SMEs, provided that its
previous accounting framework was full IFRS.
Question #5
Modified True or False: An entity shall explain how the transition from its previous financial reporting
framework to this IFRS affected its reported financial position, financial performance and cash flows.
Question #6

1.
2.
3.
4.
5.

Answers:
F; annually
Date of transition
F; retained earnings
T
True
Comprehensive Quiz
For all income tax items, assume 30% tax rate.

1. In 2015, an entity purchased equipment for CU20,000 and it received a tax deduction equal to the cost
of the equipment in the same year. What is the tax basis of the equipment?
2. In 2015, an entity reported taxable profit of CU50,000 to the tax authority. The capital gains rate is nil
and so capital gains are excluded from taxable profit. The management of the entity considers the
effect of uncertainty over the amounts reported in the tax return to be immaterial except in relation to
the treatment of the profit on the sale of a particular asset. In relation to that asset, management has
determined that there is an 80% probability that the gain of CU5,000 is a capital gain and therefore will
not be taxed, and that there is a 20% probability that the gain of CU5,000 is not a capital gain and
therefore will be taxed. How much is the entitys current tax liability for 2015?
3. An entity leases its office building under an operating lease. It has an asset for CU6,000 equal to a
prepayment of six months rent. Rents are tax-deductible when they are paid to the landlord. What is
the journal entry to recognize any deferred tax asset / liability?
4. An entity has three financial elements for which the year-end carrying amount is different from the tax
basis:
Carrying amount

Tax Basis

Machine

200,000

120,000

Warranty liability

50,000

Trade receivables net of bad

debts

48,000

50,000

What is the total amount of future deductible differences?

5. At the end of the reporting period, a tomato growers vines are six months old and bearing fully

developed ripe tomatoes (ie the tomatoes will soon be harvested). The accumulated cost of the fruitbearing vines is CU12,500 and their fair value is CU100,000. It is expected to cost the entity CU5,000
to sell the tomato crop at market. Once the tomatoes have been harvested the then-worthless vines will
be abandoned. What is the amount of gain to be recognized?
6. Deferred Tax: In IFRS for SMEs, these are exceptions to the recognition principle relating to deferred
tax except:
(a) the initial recognition of goodwill
(b) the temporary differences arising from investments in subsidiaries which are permanent in duration
(c) the temporary differences arising from investments in associate that are temporary in duration
(d) initial recognition of an asset and liability in a transaction that is not a business combination and
affects neither accounting profit nor taxable profit at the time of the transaction
7. True or False: All related party transactions must be disclosed.
8. The following entities are related parties except for:
a. one entity is an associate or joint venture of the other entity (or an associate or joint venture of a
member of a group of which the other entity is a member)
b. both entities are joint ventures of the same third entity
c. an entity that has a director or other member of key management personnel in common with the
reporting entity
d. one entity is a joint venture of a third entity and the other entity is an associate of the third entity

9. An entity cultivates cattle as livestock for meat and sells the cattle to slaughterhouses. At 31 December
20X0 the fair value less costs to sell of the entitys livestock is CU10,000. In 20X1, eight calves were
born and the entity sold ten heifers for CU200 each, incurring costs of sale of CU10 per heifer. The fair
value less costs to sell of the herd at 31 December 20X1 is CU14,000. What is the journal entry to
recognize the increase in fair value of the herd? [VOID DUE TO LACK OF INFO]
10.
a.
b.
c.
d.

There shall be no retrospective restatement for the following transactions except:

Derecognition of financial assets and financial liabilities
Hedge accounting (for the hedging relationships that still exist)
Discontinued operations
Measuring non-controlling interests

11. End of reporting period: Dec. 31, 2014

Date when FS are authorized for issue: March 31, 2015
On Feb. 28, 2015, the entity declared a final dividend of CU100,000 in respect of profits earned in the
year ended Dec. 31, 2014.
At 2014 year-end, an entity assessed its warranty obligation to be CU100,000. On March 28, 2015, the
entity discovered a latent defect in one of its lines of products. As a result of the discovery, the entity
reassessed its estimate of its warranty obligation on Dec. 31, 2014 at CU150,000.
On Feb. 1, 2015, a competitor settled a claim by the entity for breach of one of its patents by paying the
entity CU600,000. The entity opened a case against a competitor in 2014. However, the competitor
disputed the entitys case until Feb. 1, 2015.
On Feb 20, 2015, a fire destroyed one of the entitys manufacturing plants which had a carrying amount
of CU2,000,000 at 2014 year-end. The entity does not have insurance against fire damage.
What is the total amount of adjustments to be recognized in the 2014 financial statements?
ANSWERS
1. NIL / 0
2. CU15,300

3.
4.
5.
6.
7.

Dr. Income tax expense 1,800, Cr. DTL 1,800

52,000
CU82,500
D
F; Exceptions include transactions with a state which has joint control, significant influence or control
over reporting entity.
8. C

9.
10. B
11. CU650,000