Questions 1:
One of the notable differences between IFRS and US GAAP when dealing with income tax is best illustrated by the fundamental treatment of:
A、non-deductible goodwill.
B、the r*uation of property,plant,and equipment.
C、temporary differences between the carrying amount and tax base of assets and liabilities.
【Answer to question 1】B
【analysis】
B is correct.US GAAP prohibits the r*uation of PP&E.Therefore,this is a source of an important difference between US GAAP and IFRS with respect to reporting of income taxes.
A is incorrect.For non-deductible goodwill,despite some differences,US GAAP and IFRS are fundamentally the same.
C is incorrect.Both US GAAP and IFRS treat temporary differences in the same way fundamentally.
Questions 2:
At the beginning of the year,a company purchased a fixed asset for$500,000 with no expected residual value.The company depreciates similar assets on a straight-line basis over 10 years,whereas the tax authorities allow declining balance depreciation at the rate of 15%per year.In both cases,the company takes a full year’s depreciation in the first year.The tax rate is 40%.Which of the following statements concerning this asset at the end of the year is most accurate?
A、The tax base is$500,000.
B、The deferred tax asset is$10,000.
C、The temporary difference is$25,000.
【Answer to question 2】C
【analysis】
C is correct.The temporary difference is the difference between the net book value(NBV)of the asset for accounting purposes and the NBV for taxes.
A is incorrect.The tax base of the asset is the amount that will be deductible for tax purposes in future periods.At the end of the year that amount is$425,000:500,000–0.15(500,000).
B is incorrect.The difference will create a deferred tax liability of$10,000(25,000×40%),not a deferred tax asset.
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