Question

1. For each of the following items indicate the following: [17 marks] i. Is the item a eversing ii. Ifit is a reversing difference will it usually give rise to a deferred tax asset or deferred tax liability (timing) difference or a permanent difference? iii. Will the amount in the current year be added to or deducted from accounting income to arrive at taxable income? g. h. i. j. k. Proceeds are received from a life insurance company because of the death of a key officer (the company carries a policy on key officers) The company reports dividends received from taxable Canadian corporations as investment income on its income statement even though the dividends are non-taxable Estimated losses on pending lawsuits and claims are accrued for financial reporting purposes. These losses are tax deductible in the period(s) when the related liabilities are settled Unrealized gains are recognized in income for investments classified as FV-NI but are not taxable until the investments are sold and the gains realized. An impairment loss is recorded for goodwill in the current accounting period

Answer 1

Question g

In the given question , the act prevailing for income tax is not given , let us analyse both the situations that such insurance amount received is taxable and non taxable

A. If receipts are taxable,

i. Since Insurance amount received due to death of key officer is taxable , and it is also be shown as other income in books of accounts , there is no difference in Taxable income and Accounting Income. There is no concept of deferred tax.

B. If receipts are not taxable ,

i. If receipts are not taxable , then it will be a permanent difference and no deferred tax impact will prevail.

Question h

i. This results in a permanent difference and will not have deferred tax impact.

Question i

i. This results in a reversing difference and will have deferred tax impact.

ii. Since we are having more taxable income in current year and we can avail such deduction in future ,it results in a deferred tax asset

iii. We need to add back such difference to arrive the taxable income.

Question j

i.. This results in a reversing difference and will have deferred tax impact.

ii. Since we have pay tax in future on such gain , it leads to deferred tax liability

iii. To arrive the taxable income , we need to deduct such difference from accounting income

Question K

i. Impairment loss is is a temporary differnce and will have deffered tax impact

ii. Since we are having more taxable income in current year and we can avail such deduction in future ,it results in a deferred tax asset

iii. We need to add back such difference to arrive the taxable income.

ALL THE BEST