Question

1- Under previous accounting rules, what are the financial reporting differences between an operating lease and a capital lease? How did this change with the new accounting rules effective in 2019?

2- What are the economic and accounting differences between a defined contribution plan and a defined benefit plan?

3- What are the two components of income tax expense?

Answer 1

Solution. 1.Previous accounting rules only included disclosure of capital lease on balance sheet and operating lease accounts stays off the balance sheet of the organization. The new accounting rules effective in 2019 requires the disclosure of both operating lease and capital lease on organization's balance sheet which are held for a year or more, treated as both a liability and an asset to the organization.

2.Retirement plans forms an important role in one's employment years as to meet expenses of day to day activities post retirement. A defined contribution plan is a plan created by the employer of the individual which involves contribution from employee over time for retirement and the employer matches the contribution amount(if applicable), and provides access to present and future tax advantaged saving.

A defined benefit plan is one introduced and created by the employer of the individual as a retirement account payout and encompasses traditional pension and cash-balance plan, and is calculated on the salary amount and years of employment.

3.Firstly, income tax expense refers to the amount of tax expense generated and incurred on the taxable profit or revenue earned by the payer according to the set government rules and regulations. The two components of income tax expense are enlisted below:

a)Income taxes currently payable- It refers to the amount that the company owes in form of current taxes which are to be paid within one accounting year of the company and are recorded on balance sheet under current liabilities.

b)Deferred tax expense- It refers to the net change in deferred tax liabilities and assets during an accounting period and provides basis for consolidated tax return.