Acct5907 International Financial Statement Analysis

2639 Words Sep 4th, 2012 11 Pages
Mid-semester Test 2 2012 Sem 1 (Solutions to Analysis Questions (section B) and comments)
General comments (1) Both the analysis questions were taken from the lecture examples, additional exercise, workbook exercises and practice test. Students who had worked through these materials were competent in handling the mid-term test. Students who believe that they did not perform as well as they had expected should going through the lecture materials and workbook more thoroughly before the final exam. You may also want to work through the mid-term 2 to identify the gaps in your understanding. It is important to focus on the topics that you have not achieved an adequate mark. Please see the
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The current statutory tax rate is 30%. Income tax expense for the year ended 31 December 2011 was $169,774. You found out that carrying amounts of the assets and liabilities as at 31 December 2011 are equal to their tax bases except for the following items. These items originate from the same tax jurisdiction. 1. Gross property, plant and equipment is $850,000. Accounting depreciation is $255,000 and tax depreciation is $102,000. 2. Development cost of $300,000 was incurred during the year. It is depreciated over five years for accounting purposes. It is allowed for tax purposes when cash is paid. 3. Interest received in advance $45,000. Interest is taxed on an accrual basis. 4. A long-term loan was secured for $90,000. Interest is charged on 12% per year and is payable at the end of the year. Only cash interest is tax deductible. 5. A provision for restructuring of $40,000 was made in 2011. Restructuring costs are tax deductible when the company incurs the cost. Required (i) Calculate the deferred tax liability (asset) reported by the company as at 31 Dec 2011. Show the carrying amounts and tax bases for the assets or liabilities used in your computation. (15 marks) (ii) You believe that the tax rate will go up to 33% in the near future. You plan to adjust for the higher tax rate in Watts’ 2011 financial statements. Describe four expected
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