Effective Tax Rate – NBC Institute

AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

Question

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15 million on profits before tax of N105 million, resulting in an effective tax rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30 million on a profit before tax of N90 million, resulting in an effective rate of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, both companies have paid the same amount of tax of N24 million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income.

Answer

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Tags: Cash Flow Statement, Effective Tax Rate, Income Tax Rates, Tax Accounting
Level: Level 3

Topic: Corporate Reporting and Compliance
Series: NOV 2014

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Question

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow Variances, Deferred Tax, Effective Tax Rate, Financial Statements, Income Tax, Tax adjustments, Tax provisions
Level: Level 3

Topic: Income Taxes (IAS 12)
Series: NOV 2013

AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow Statement, Effective Tax Rate, Income Tax Rates, Tax Accounting
Level: Level 3

Topic: Corporate Reporting and Compliance
Series: NOV 2014

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow Variances, Deferred Tax, Effective Tax Rate, Financial Statements, Income Tax, Tax adjustments, Tax provisions
Level: Level 3

Topic: Income Taxes (IAS 12)
Series: NOV 2013

Question Tag: Effective Tax Rate

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AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

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Question Tag: Effective Tax Rate

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AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

You're reporting an error for "AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting"

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

You're reporting an error for "CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)"

AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting

Explain why tax charges differ from applicable rates and why tax payments differ between cash flows and profit statements.

You're reporting an error for "AT – Nov 2014 – L3 – SB – Q2b – Corporate Tax Compliance and Reporting"

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

You're reporting an error for "CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)"

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