CFAS CHAPTER 13

Exercise 1

1. An entity’s trial balance shows a debt balance of P2.1 million brought forward on current tax
and credit balance of P5.4 million on deferred tax. The tax change for the current year is
estimated at 16.2 million and the carrying amount of net assets are P13 million in excess of
their tax base. The income tax rate is 30%.
What amount will be shown as an income tax in the statement of profit or loss for the year?

a. P15.6 million
b. P12.6 million
c. P16.8 million
d. P18.3 million

2. An entity’s trial balance at Dec. 31 20x8 shows the debit balance of P700,000 on current tax and
credit balance of P8,400 on deferred tax. The directors have estimated the provision for income
tax for the year at P4.5 million and the required deferred tax provision is P5.6 million, P1.2
million of which relates to a property revaluation.
What is the profit or loss income tax charge for the eyar ended Dec. 31,20X8?

a. P1 million
b. P2.4 million
c. P1.2 million
d. P18.3 million

3. The following information relates to an entity.

i. At Jan 1 , 20X8, the carrying amount of non- current assets exceed their tax
written down value by P850,000
ii. For the year to Dec. 31, 20X8, the entity claimed depreciation for the tax
purposes of 500,000 and charged depreciation of P450,000 in the financial
statements.
iii. During the year ended Dec. 31, 20X8, the entity revalued a property. The
revaluation surplus was P250,000. There are no current plans to sell the
property.
iv. The tax rate was 30% throughout the year.

What is the provision for deferred tax required by PAS 12 income taxes at Dec. 31,
20X8?

a. P240,000
b. P270,000
 c. P315,000
d. P345,000
4. The statements of financial position of Garibaidi include the following extracts:

Statement of financial position as at Sept. 30

20X9 20X8

In millions In millions

Non current liabilities

Deferred tax 310 140

Current liabilities

Taxation 130 160

The tax charge in the statement of profit or loss for the year ended Sept. 30, 20X9 is P270
million. What amount of tax was paid during the year to Sept. 30, 20X9?

Exercise 2

1. Which of the following will not give rise to a taxable temporary difference?
a. Receipt of a non taxable government grant
b. Accelerated depreciation of a machine for tax relief when paid
c. Prepaid expenses that benefited from tax relief when paid
d. Capitalized development cost that were fully relieved for taxes purposes when paid

2. Which of the following best describes a temporary difference when applying the balance sheet
liability method of accounting deferred tax?
a. Amount that will be taxable or deductible in future periods
b. The amount that will be deductible for tax purposes when the carrying amount or an asset is
recovered
c. Differences between taxable profit and accounting profit that originate in one period and
reverse in another
d. The difference between the amount attributed to an asset or liability for the purposes and
its carrying amount.

3. Assets have carrying amount of P450,000 and a tax base of P360, 000. Which of the following
best describes the resulting temporary difference P90,000?
a. An amount of income tax recoverable in future periods
 b. An amount of income tax payable in future periods when the carrying amount of the assets
is recovered
c. A difference that will result in taxable amounts in future period when the carrying amount
of the assets is recovered
d. A difference that will result in amounts that benefit from tax relief in the future periods
when the carrying amount of the assets is recovered.

4. Which of the following provides an example of an example of an outflow of economic benefits

associated with the reversal of taxable temporary difference?
a. Receipt of a P3,000 accrued interest receivable, which is taxed on cash basis
b. Payment of P5,000 accrued expense that are allowable for tax purpose on cash basis
c. Receipt of P60,000 owed by credit customers; revenue is taxed when recognizing as an
income
d. Payment of P9,000 accrued expenses that were allowable for tax purpose when recognized
as an expense for accounting purposes

5. Which of the following correctly describes deferred tax?

a. An accounting device
b. Tax that has been avoided
c. Tax due back from the tax authority
d. Tax that will not be paid until the following period

6. The financial statements of Caesar Inc, include an amount for interest receivable of P10,000. The
related interest revenue will be taxed on a cash basis. What is the tax base of the interest
receivable and what is temporary difference arises?
a. A tax base of P10,000 and no resulting temporary difference
b. A tax base of zero and a taxable temporary difference of P10,000
c. A tax base of zero and a deductible temporary difference of P10,000
d. A tax base of P10,000 and a taxable temporary difference of P10,000

7. Which of the following statements regarding the disclosure of deferred tax is not correct?
a. The deferred tax charge for the year must be disclosed in the statement of profit or loss.
b. Deferred tax balances must be disclosure as non current in the statement of financial
position.
c. A statement of financial position may include both deferred tax assets and deferred tax
liability
d. The amount of deductible temporary differences that are not recognizes as a deferred tax
asset must be disclosed in the notes to the accounts.
 8. An entity’s liabilities include sales revenue received in advance with the carrying amount of
P660. The revenue was taxed when it was received.

According to PAS 12 Income taxes, which of the following statements is correct?

a. The tax base of the liability is zero and there is a taxable temporary difference of P6,000
b. The tax base of the liability is P6,000 and there is a taxable temporary difference of P6,000
c. The tax base of the liability is zero and there is deductible temporary differences of P6,000
d. The tax base of the liability is P6,000 and there is a deductible temporary difference of
P6,000

9. At the end of the reporting period Bonaparte Inc had the following assets in its statement of
financial position:

A machine that had originally cost P150,000 with related accumulated depreciation of P50,000.
Accumulated tax depreciation was P100,000.
Trade receivables with the carrying amount of P60,000. This amount is net of an allowance for
doubtful receivables of P40,000. The related sales revenue has already been included in taxable
profit. Doubtful debts are not deductible for tax purposes until the debt is written off.

The tax rate is 30%

Applying the balance sheet liability method of tax effect accounting, these items will give rise to:

a. A net deferred tax asset of P3,000

b. A net deferred tax liability of P3,000
c. A net deferred tax assets of P27,000
d. A net deferred tax liability P27,000

CFAS CHAPTER 14

1. Pirandello had 10 million ordinary shares in issue throughout the year ended June 30, 20X3. On
July 1, 20X2, it had issued P2 million of 6% convertible loan stock, each P5 of loan stock
convertible into 4 ordinary shares on July 1, 20X6 at the option of the holder.
Pirandello had profit after tax for the year ended june 30, 20X3 of P1,850,ooo. It pays tax on
profits at 30%. What was diluted EPS for the holder.
a. P0. 167
b. P0. 185
c. P0. 161
d. P0.17
2. At Sept 30, 20X2, the trial balance of the Becquerel includes the following balances:

P’000
Equity shares of 20c each 50, 000
Share premium 15,000
 Becquerel has accounted for a fully subscribed rights issue of the equity shares made on April 1,
20X2 of one new share for every four in issue at 42 cents each. This was only share issue made
during the year.

What were the balances on the share capital and share premium accounts at sept 30, 20X1?

Share capital Share premium

P’000 P’000
a. 37,500 11,250
b. 40,000 4,000
c. 37,000 4,000
d. 40,000 11, 250

3. Aqua has correctly calculated its basic earnings per share (EPS) for the current year.
Which of the following items need to be additionally considered when calculating the diluted
EPS of aqua for this year?

i. A 1 for 5 rights issue of the equity shares during the year at P1.20 when the market price
of the equity shares was P2.00
ii. The issue during the year of a convertible ( to equity shares) loan note.
iii. The granting during the year directors share options excercisable in three years time.
iv. Equity shares issue during the year as the purchase consideration for the acquisition of a
new subsidiary company.
a. All four
b. I and ii only
c. I and iii only
d. I and iv only

4. Many commentators believe that the trend of earnings per share ( EPS ) is a more reliable
indicator of underlying performance than the trend of net profit for the year.

Which of the following statements supports this view?

a. Net profit can be manipulated by the choice of accounting policies but EPS cannot be
manipulated in this way
b. EPS takes into account the additional resources made available to earn profit when new
shares are issued for cash , whereas net profit does not
c. The disclosure of a diluted EPS figure is a forecast of the future trend of profit.
d. The comparative EPS is restarted where a change of accounting policy affects the previos
year’s profits.
5. At Jan 1, 20X8, Morgan had 5 million P1 equity shares in issue. On June 1, 20X8, it made a 1 for
5 rights issue at a price of P1.50. the market price of the shares on the last day of quotation with
rights was P1.80.
Total earnings for the year ended Dec. 31, 20X8 was P7.6 million.
a. P1.35
b. P1.36
c. P1.27
d. P1.06

6. Hertz had share capital of P7.5 million in 50c equity shares at Oct. 1 20x6. On Jan. 1 20X7, it
made an issue of 4 million shares at full market price immediately followed by a 1 for 3 bonus
issue.
The financial statements at Sept. 30, 20X7 showed profit for the year of P12 million.

What was EPS for the year?