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Chapter 19: 2ISTQ (page 1113)

Which of the following statements is correct with regard to IFRS and GAAP? (a) Under GAAP, all potential liabilities related to uncertain tax positions must be recognized. (b) The tax effects related to certain items are reported in equity under GAAP; under IFRS, the tax effects are charged or credited to income. (c) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an impairment approach for deferred tax assets. (d) IFRS classifies deferred taxes based on the classification of the asset or liability to which it relates.

Short Answer

Expert verified

Debit and Credit are the two-accounting principles using which the amounts of each transaction is recorded in the book of the company's accounts. Debit depicts the inflow of money, and Creditrepresents the outflow of cash.

Step by step solution

01

Option (c) IFRS uses an affirmative judgment approach for deferred tax assets, whereas GAAP uses an impairment approach for deferred tax assets. Is the correct answer.

Option c is the correct answer.

02

Reason

IFRS uses an affirmative approach for the deferred tax assets because the amount of deferred tax assets will be realized up to the amount probable. On the other hand, GAAP uses an impairment approach to recognize the deferred tax asset amount since it reduces the organization's valuation account. All portion of the deferred tax asset is not realized.

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Most popular questions from this chapter

The pretax financial income (or loss) figures for Jenny Spangler Company are as follows:

2012- $160,000

2013- 250,000

2014- 80,000

2015- 160,000

2016- 380,000

2017- 120,000

2018- 100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all the given years. Assume a 45% tax rate for 2012 and 2013, and a 40% tax rate for the remaining years. Instructions (a) Prepare the journal entries for the years 2014 to 2018 to record the income tax expense and effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company using the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Explain the difference between pretax financial income and taxable income.

What is the difference between a future taxable amount and a future deductible amount? When is it appropriate to record a valuation account for a deferred tax asset?

Shetland Inc. had pretax financial income of \(154,000 in 2017. Included in the computation of that amount is insurance expense of \)4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland鈥檚 journal entry to record 2017 taxes, assuming a tax rate of 45%.

The amount of income taxes due to the government for a period of time is rarely the amount reported on the income statement for that period as income tax expense. (b) Explain the basic principles that are applied in accounting for income taxes at the date of the financial statements to meet the objectives discussed in (a).
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