Topic: Accounting for Income Taxes (IAS 12)

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FR – Nov 2023 – L2 – Q5b – Accounting for Income Taxes (IAS 12)

Calculate Shakara Limited's income tax liability, deferred tax balance, and movement of deferred tax.

Question

Shakara Limited was incorporated on January 1, 2022. During the year ended December 31, 2022, the company made a profit before taxation of N18,150,000.

The following capital expenditure were made during the year:

Expenditure	N’000
Plant and machinery	7,200
Motor vehicles	1,800

The depreciation charged for the year amounted to N1,650,000, and capital allowance granted by the Federal Inland Revenue Services (FIRS) for the same period amounted to N2,250,000.

Company income tax rate is 30%, and deferred tax liability brought forward was N1,200,000.

Required:
i. Calculate the company income tax liability for the year ended December 31, 2022. (3 Marks)

ii. Calculate the deferred tax balance that should be disclosed in the statement of financial position of Shakara Limited as at December 31, 2022. (3 Marks)

iii. Prepare notes showing the movement of deferred tax charged to profit or loss for the year ended December 31, 2022. (3 Marks)

Answer

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Tags: Capital Allowance, Deferred Tax, IAS 12, Income Tax, Tax Liability
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)

FR – Nov 2023 – L2 – Q5a – Accounting for Income Taxes (IAS 12)

Define deferred tax, permanent differences, and temporary differences per IAS 12.

Question

Explain the following terms in accordance with IAS 12 – Income tax.
i. Deferred tax
ii. Permanent differences
iii. Temporary differences

Answer

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Tags: Deferred Tax, IAS 12, Permanent Differences, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

Question

a. The Conceptual Framework for Financial Reporting states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of general-purpose financial statements. (10 Marks)

b. IAS 16 prescribes the principles and the valuation methods in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Describe the TWO methods of valuation recognized in IAS 16 on property, plant, and equipment. (5 Marks)

Answer

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Tags: Current Tax, Deferred Tax, IAS 12, Income Taxes, Tax Expense, Tax liabilities
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2023

FR – Nov 2019 – L2 – Q2b – Accounting for Income Taxes (IAS 12)

Calculate current and deferred tax for Dan Ruwa Nigeria Limited and prepare the statement of profit or loss.

Question

b. Dan Ruwa Nigeria Limited is a company that specializes in the production of bottled and sachet water. The company was incorporated on January 1, 2018.

The summarised financial statements of the company for the year ended December 31, 2018, are as follows:

Extract of Statement of Profit or Loss for the year ended December 31, 2018:

Description	N’000
Revenue	270,000
Administrative and other allowable expenses	(138,000)
Accounting depreciation	(11,000)
Net profit before taxation	121,000

Extract of Statement of Financial Position as at December 31, 2018:

Description	N’000
Property, plant & equipment	48,000
Motor vehicle	12,000
Less: Depreciation	(11,000)
Carrying amount	49,000

Description	N’000
Ordinary share capital	17,000
Retained earnings	12,000
Other liabilities	20,000
Total	49,000

The Federal Inland Revenue Service (FIRS) granted the company a capital allowance on its non-current assets, which amounted to N15,000,000, and the company income tax rate is 30%.

Required:

i. Calculate the current income tax expense and the deferred tax liability balance that should be disclosed in the statement of financial position of the company as at December 31, 2018.
(10 Marks)

ii. Prepare the statement of profit or loss of Dan Ruwa Nigeria Limited showing the tax expense for the year ended December 31, 2018.
(5 Marks)

Answer

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Tags: Capital allowances, Current Tax, Deferred Tax, IAS 12, Income Tax Calculation
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2019

FR – Nov 2019 – L2 – Q2a – Accounting for Income Taxes (IAS 12)

Explain the concepts of current tax and deferred tax in accordance with IAS 12.

Question

a. In accordance with IAS 12 on Income Tax, the income tax expense in the statement of profit or loss is composed of two tax components:

i. Current tax
ii. Deferred tax

Required:

Explain these two tax components.
(5 Marks)

Answer

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Tags: Current Tax, Deferred Tax, IAS 12, Income Tax
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2019

FR – May 2018 – L2 – Q6b – Accounting for Income Taxes (IAS 12)

Calculate the deferred tax charge/credit for Lawmarg Nigeria Limited and the deferred tax balance in the statement of financial position.

Question

Lawmarg Nigeria Limited purchased an item of plant for N2,000,000 on October 1, 2014. It had an estimated life of eight years and an estimated residual value of N400,000. The plant is depreciated on a straight-line basis. The tax authorities do not allow depreciation as a deductible expense. Instead, an initial capital allowance of 40% of the cost of this type of asset can be claimed against income tax, and 20% per annum (on a reducing balance basis) of its tax base thereafter. The rate of income tax is 30%.

Required: In respect of the above item of plant, calculate the deferred tax charge/credit in Lawmarg Nigeria Limited’s statement of profit or loss for the year ended December 31, 2017, and the deferred tax balance in the statement of financial position at that date.

Answer

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Tags: Deferred Tax, Depreciation, IAS 12, Income Taxes, Tax Base, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2018

FR – May 2018 – L2 – Q6a – Accounting for Income Taxes (IAS 12)

Explain the need for providing deferred tax and the principles for accounting for deferred tax under IAS 12.

Question

IAS 12 – Income Tax details the requirements relating to the accounting treatment of deferred tax and current income tax.

Required: Explain the need to provide for deferred tax and briefly outline the principles of accounting for deferred tax contained in IAS 12.

Answer

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Tags: Accounting Standards, Deferred Tax, IAS 12, Income Taxes, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2018

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

Question

Yemnike Nigeria Limited has an accounting profit before taxation of N225 million for the year ended December 31, 2017.

The following are extracts of the financial position of Yemnike Nigeria Limited as at December 31, 2017:

Non-Current Assets:

Item	N’000
Building	157,500
Plant and machinery	250,000
Assets held under finance lease	200,000

Receivables:

Item	N’000
Trade receivables	182,500
Interest receivable	2,500

Payables:

Item	N’000
Fines	25,000
Finance lease obligation	216,000
Interest payable	8,250

The following information is relevant:

The building was acquired by the company at a cost of N175 million at the start of the year, and it is depreciated at 10% per annum on a straight-line basis. The company’s tax consultants have stated that the company can claim N105 million capital allowance this year on the building.
The balance of plant and machinery is after providing for depreciation of N30 million, and the capital allowance claimable on it is N25 million.
The asset held under finance lease was acquired during the year. Rental expense for the lease is tax deductible. The annual lease rental is N72 million and was paid on December 31, 2017. The depreciation policy for leased assets is 20% per annum on a straight-line basis. The annual finance charge is N36.667 million.
The receivables figure is shown net of an allowance for doubtful balances of N17.5 million. A deduction for debt is only allowed for tax purposes when the debtor enters liquidation.
Interest income is taxed, and interest expense is allowable both on a cash basis. There were no opening balances for interest receivable and payable.
Provisions for fines and penalties are not allowable deductions for tax purposes.

Required:
(a) Calculate the current tax expense for the period.
(b) Calculate the deferred tax liability as at December 31, 2017.
(c) Prepare notes showing the component of the tax expense for the year.

Answer

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Tags: Current Tax, Deferred Tax, Tax Expense
Level: Level 1

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2018

FR – Nov 2023 – L2 – Q5b – Accounting for Income Taxes (IAS 12)

Calculate Shakara Limited's income tax liability, deferred tax balance, and movement of deferred tax.

Question

Shakara Limited was incorporated on January 1, 2022. During the year ended December 31, 2022, the company made a profit before taxation of N18,150,000.

The following capital expenditure were made during the year:

Expenditure	N’000
Plant and machinery	7,200
Motor vehicles	1,800

The depreciation charged for the year amounted to N1,650,000, and capital allowance granted by the Federal Inland Revenue Services (FIRS) for the same period amounted to N2,250,000.

Company income tax rate is 30%, and deferred tax liability brought forward was N1,200,000.

Required:
i. Calculate the company income tax liability for the year ended December 31, 2022. (3 Marks)

ii. Calculate the deferred tax balance that should be disclosed in the statement of financial position of Shakara Limited as at December 31, 2022. (3 Marks)

iii. Prepare notes showing the movement of deferred tax charged to profit or loss for the year ended December 31, 2022. (3 Marks)

Answer

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Tags: Capital Allowance, Deferred Tax, IAS 12, Income Tax, Tax Liability
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)

FR – Nov 2023 – L2 – Q5a – Accounting for Income Taxes (IAS 12)

Define deferred tax, permanent differences, and temporary differences per IAS 12.

Question

Explain the following terms in accordance with IAS 12 – Income tax.
i. Deferred tax
ii. Permanent differences
iii. Temporary differences

Answer

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Tags: Deferred Tax, IAS 12, Permanent Differences, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

Question

a. The Conceptual Framework for Financial Reporting states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of general-purpose financial statements. (10 Marks)

b. IAS 16 prescribes the principles and the valuation methods in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Describe the TWO methods of valuation recognized in IAS 16 on property, plant, and equipment. (5 Marks)

Answer

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Tags: Current Tax, Deferred Tax, IAS 12, Income Taxes, Tax Expense, Tax liabilities
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2023

FR – Nov 2019 – L2 – Q2b – Accounting for Income Taxes (IAS 12)

Calculate current and deferred tax for Dan Ruwa Nigeria Limited and prepare the statement of profit or loss.

Question

b. Dan Ruwa Nigeria Limited is a company that specializes in the production of bottled and sachet water. The company was incorporated on January 1, 2018.

The summarised financial statements of the company for the year ended December 31, 2018, are as follows:

Extract of Statement of Profit or Loss for the year ended December 31, 2018:

Description	N’000
Revenue	270,000
Administrative and other allowable expenses	(138,000)
Accounting depreciation	(11,000)
Net profit before taxation	121,000

Extract of Statement of Financial Position as at December 31, 2018:

Description	N’000
Property, plant & equipment	48,000
Motor vehicle	12,000
Less: Depreciation	(11,000)
Carrying amount	49,000

Description	N’000
Ordinary share capital	17,000
Retained earnings	12,000
Other liabilities	20,000
Total	49,000

The Federal Inland Revenue Service (FIRS) granted the company a capital allowance on its non-current assets, which amounted to N15,000,000, and the company income tax rate is 30%.

Required:

i. Calculate the current income tax expense and the deferred tax liability balance that should be disclosed in the statement of financial position of the company as at December 31, 2018.
(10 Marks)

ii. Prepare the statement of profit or loss of Dan Ruwa Nigeria Limited showing the tax expense for the year ended December 31, 2018.
(5 Marks)

Answer

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Tags: Capital allowances, Current Tax, Deferred Tax, IAS 12, Income Tax Calculation
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2019

FR – Nov 2019 – L2 – Q2a – Accounting for Income Taxes (IAS 12)

Explain the concepts of current tax and deferred tax in accordance with IAS 12.

Question

a. In accordance with IAS 12 on Income Tax, the income tax expense in the statement of profit or loss is composed of two tax components:

i. Current tax
ii. Deferred tax

Required:

Explain these two tax components.
(5 Marks)

Answer

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Tags: Current Tax, Deferred Tax, IAS 12, Income Tax
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: NOV 2019

FR – May 2018 – L2 – Q6b – Accounting for Income Taxes (IAS 12)

Calculate the deferred tax charge/credit for Lawmarg Nigeria Limited and the deferred tax balance in the statement of financial position.

Question

Answer

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Tags: Deferred Tax, Depreciation, IAS 12, Income Taxes, Tax Base, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2018

FR – May 2018 – L2 – Q6a – Accounting for Income Taxes (IAS 12)

Explain the need for providing deferred tax and the principles for accounting for deferred tax under IAS 12.

Question

IAS 12 – Income Tax details the requirements relating to the accounting treatment of deferred tax and current income tax.

Required: Explain the need to provide for deferred tax and briefly outline the principles of accounting for deferred tax contained in IAS 12.

Answer

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Tags: Accounting Standards, Deferred Tax, IAS 12, Income Taxes, Temporary Differences
Level: Level 2

Topic: Accounting for Income Taxes (IAS 12)
Series: MAY 2018

FR – Nov 2018 – L2 – SB – Q3 – Accounting for Income Taxes (IAS 12)

Calculate the current tax expense, deferred tax liability, and tax expense components for Yemnike Nigeria Ltd.

Question

Yemnike Nigeria Limited has an accounting profit before taxation of N225 million for the year ended December 31, 2017.

The following are extracts of the financial position of Yemnike Nigeria Limited as at December 31, 2017:

Non-Current Assets:

Item	N’000
Building	157,500
Plant and machinery	250,000
Assets held under finance lease	200,000

Receivables:

Item	N’000
Trade receivables	182,500
Interest receivable	2,500

Payables:

Item	N’000
Fines	25,000
Finance lease obligation	216,000
Interest payable	8,250

The following information is relevant:

The building was acquired by the company at a cost of N175 million at the start of the year, and it is depreciated at 10% per annum on a straight-line basis. The company’s tax consultants have stated that the company can claim N105 million capital allowance this year on the building.
The balance of plant and machinery is after providing for depreciation of N30 million, and the capital allowance claimable on it is N25 million.
The asset held under finance lease was acquired during the year. Rental expense for the lease is tax deductible. The annual lease rental is N72 million and was paid on December 31, 2017. The depreciation policy for leased assets is 20% per annum on a straight-line basis. The annual finance charge is N36.667 million.
The receivables figure is shown net of an allowance for doubtful balances of N17.5 million. A deduction for debt is only allowed for tax purposes when the debtor enters liquidation.
Interest income is taxed, and interest expense is allowable both on a cash basis. There were no opening balances for interest receivable and payable.
Provisions for fines and penalties are not allowable deductions for tax purposes.

Answer

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Tags: Current Tax, Deferred Tax, Tax Expense
Level: Level 1