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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

How are deferred tax assets and deferred tax liabilities reported on the statement of financial position under IFRS?

Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2009 through 2017 as follows.Income (Loss) Tax Rate 2009 $ 29,000 30% 2010 40,000 30 2011 17,000 35 2012 48,000 50 2013 (150,000) 40 2014 90,000 40 2015 30,000 40 2016 105,000 40 2017 (60,000) 45Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized. Instructions (a) What entry(ies) for income taxes should be recorded for 2013? (b) Indicate what the income tax expense portion of the income statement for 2013 should look like. Assume all income (loss) relates to continuing operations. (c) What entry for income taxes should be recorded in 2014? (d) How should the income tax expense section of the income statement for 2014 appear? (e) What entry for income taxes should be recorded in 2017? (f) How should the income tax expense section of the income statement for 2017 appear?

Taxable income and pretax financial income would be identical for Huber Co. except for its treatments of gross profit on installment sales and estimated costs of warranties. The following income computations have been prepared. Taxable Income 2016 2017 2018 Excess of revenues over expenses (excluding two temporary differences) \(160,000 \)210,000 \(90,000 Installment gross profi t collected 8,000 8,000 8,000 Expenditures for warranties (5,000) (5,000) (5,000) Taxable income \)163,000 \(213,000 \)93,000 Pretax Financial Income Excess of revenues over expenses (excluding two temporary differences) \(160,000 \)210,000 \(90,000 Installment gross profi t recognized 24,000 鈥�0鈥� 鈥�0鈥� Estimated cost of warranties (15,000) 鈥�0鈥� 鈥�0鈥� Income before taxes \)169,000 \(210,000 \)90,000. The tax rates in effect are 2016, 40%; 2017 and 2018, 45%. All tax rates were enacted into law on January 1, 2016. No deferred income taxes existed at the beginning of 2016. Taxable income is expected in all future years. Instructions Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016, 2017, and 2018.

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes.

Deferred tax asset $24,000

Deferred tax liability 69,000

Indicate how these balances would be presented in Youngman鈥檚 December 31, 2017, statement of financial position.

Jennifer Capriati Corp. has a deferred tax asset account with a balance of \(150,000 at the end of 2016 due to a single cumulative temporary difference of \)375,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of \(450,000. Taxable income for 2017 is \)820,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016. Instructions (a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized. (b) Assuming that it is more likely than not that $30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account.
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