Riverbed Corp. reported the following differences between SFP
carrying amounts and tax bases at December 31, 2019:
Carrying Amount | Tax Base | ||||
---|---|---|---|---|---|
Depreciable assets | $104,000 | $70,200 | |||
Warranty liability (current liability) | 18,500 | 0 | |||
Pension liability (long-term liability) | 39,600 | 0 |
The differences between the carrying amounts and tax bases were
expected to reverse as follows:
2020 | 2021 | After 2021 | |||||
---|---|---|---|---|---|---|---|
Depreciable assets | $17,000 | $12,000 | $4,800 | ||||
Warranty liability | 18,500 | 0 | 0 | ||||
Accrued pension liability | 12,000 | 11,000 | 16,600 |
Tax rates enacted at December 31, 2019 were 32% for 2019, 31% for
2020, 30% for 2021, and 29% for 2022 and later years.
During 2020, Riverbed Corp. made four quarterly tax instalment
payments of $8,000 each and reported income before income tax on
its income statement of $111,100. Included in this amount were
dividends from taxable Canadian corporations of $3,900 (non-taxable
income) and $18,000 of expenses related to the executive team’s
golf dues (non-tax-deductible expenses). There were no changes to
the enacted tax rates during the year.
As expected, book depreciation in 2020 exceeded the capital cost
allowance claimed for tax purposes by $17,000, and there were no
additions or disposals of property, plant, and equipment during the
year. A review of the 2020 activity in the Warranty Liability
account in the ledger indicated the following:
Balance, Dec. 31, 2019 | $18,500 | ||
Payments on 2019 product warranties | (19,900 | ) | |
Payments on 2020 product warranties | (7,600 | ) | |
2020 warranty accrual | 29,300 | ||
Balance, Dec. 31, 2020 | $20,300 |
All warranties are valid for one year only. The Pension Liability
account reported the following activity:
Balance, Dec. 31, 2019 | $39,600 | ||
Payment to pension trustee | (69,000 | ) | |
2020 pension expense | 57,000 | ||
Balance, Dec. 31, 2020 | $27,600 |
Pension expenses are deductible for tax purposes, but only as they
are paid to the trustee, not as they are accrued for financial
reporting purposes.
Riverbed Corp. reports under IFRS.
1. Calculate the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2019.
2. Calculate the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2020.
Solution 1 : 2019 balances with mixed tax rates:
Deferred Taxes |
||||||||
Future taxable amounts: |
2020 |
2021 |
2022 |
Total |
||||
CCA vs. depreciation |
($17,000) |
($12,000) |
($4,800) |
($33,800) |
||||
Tax rate enacted for the year |
31% |
30% |
29% |
|||||
Deferred tax liability |
($5,270) |
($3,600) |
($1,392) |
($10,262) |
||||
Future deductible amounts |
2020 |
2021 |
2022 |
Total |
||||
Pension liability |
12,000 |
11,000 |
16,600 |
39,600 |
||||
Tax rate enacted for the year |
31% |
30% |
29% |
|||||
Deferred tax asset |
$ 3,720 |
$ 3,300 |
$ 4,814 |
$ 11,834 |
Statement of |
Deductible |
Deferred |
For (e) ASPE |
||||
Financial Position |
(Taxable) |
Tax |
Current |
||||
Account |
Tax |
Carrying |
Temporary |
Tax |
Asset |
or Long- |
|
Dec. 31, 2019 |
Base |
Amount |
Differences |
Rate |
(Liability) |
Term |
|
Property, plant, & equipment |
$70,200 |
$104,000 |
($33,800) |
Mixed |
($10,262) |
(1) |
LT |
Warranty Liability |
-0- |
(18,500) |
18,500 |
31% |
5,735 |
C |
|
Pension Liability |
-0- |
(39,600) |
39,600 |
Mixed |
11,834 |
(1) |
LT |
Deferred tax asset, December 31, 2019 |
$7,307 |
(1) From table above
Statement of financial position classification:
Non-current assets:
Deferred tax asset for 2019 = $7,307
($5,735 + $11,834– $10,262)
IFRS require that all deferred tax assets and liabilities be reported as non-current items on a classified statement of financial position.
Solution 2 : 2020 future taxes – mixed tax rates
Deferred Taxes |
||||||
Future taxable amounts: |
2021 |
2022 |
Total |
|||
CCA vs. Depreciation |
($12,000) |
($4,800) |
($16,800) |
|||
Tax rate enacted for the year |
30% |
29% |
||||
Deferred tax liability |
($3,600) |
($1,392) |
($4,992) |
|||
Future deductible amounts |
2021 |
2022 |
Total |
|||
Pension liability |
11,000 |
16,600 |
27,600 |
|||
Tax rate enacted for the year |
30% |
29% |
||||
Deferred tax asset |
$ 3,300 |
$ 4,814 |
$ 8,114 |
Statement of |
Deductible |
Deferred |
For (e) |
||||
Financial Position |
(Taxable) |
Tax |
Current |
||||
Account |
Tax |
Carrying |
Temporary |
Tax |
Asset |
or Long- |
|
Dec. 31, 2020 |
Base |
Amount |
Differences |
Rate |
(Liability) |
Term |
|
Property,plant, &equipment |
* |
* |
($16,800) |
Mixed |
($4,992) |
(1) |
LT |
Warranty Liability |
-0- |
(20,300) |
20,300 |
30% |
6,090 |
C |
|
Pension Liability |
-0- |
(27,600) |
27,600 |
Mixed |
8,114 |
(1) |
LT |
Deferred tax asset, December 31, 2020 Deferred tax asset before adjustment Incr. in deferred tax asset, and deferred tax benefit for 2020 |
9,212 7,307 $1,905 |
* not given in the
problem
(1) from table above
Incr. in deferred tax asset, and deferred tax benefit for 2020 = $1,905
Riverbed Corp. reported the following differences between SFP carrying amounts and tax bases at December 31,...
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