Intermediate Accounting Iii

2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years?

| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)

2) For year 1 the new system depreciated by 20 percent. Multiply that by the net initial investment and you get the total amount depreciated after 1 year, equal to $60,588. With a 36 percent tax rate you get the depreciated tax savings of $21,812.

year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary)

Compute the estimated inventory at May 31, assuming that the gross profit is 25% of cost

1. Depreciable asset A was purchased January 2, 2007. It originally cost $540,000 and, for depreciation

addition, the company has an applicable tax rate of 40% and no unused tax loss or credit carryforwards.

Requirement 1: What is the rationale for the argument that long-term deferred tax liabilities should be excluded from liabilities when computing

| Separate classification for "extraordinary items" that must be reported net of tax below net income.

Differences between tax positions stated in a tax return and amounts recognized in the financial statements will usually conclude with the following:

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

The deferred method of Opinion II led to the continued increase in size of deferred tax credits (liabilities) on the statement of financial position for most

A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

The temporary differences are the differences between the carrying amount of an asset and liability and its tax base. Two types of temporary differences can arise taxable temporary difference and deductible temporary difference. The taxable temporary difference results in the payment of taxes when the carrying amount of a liability is settled or the carrying amount of an asset is recovered. Taxable temporary differences give rise to deferred tax liabilities. A deferred tax liability arises if the carrying value of an asset is greater than its tax base or if the carrying value of a liability is less than its tax base. Deductible temporary differences result in amounts being deductible when determining the taxable profit or loss in the future period when assets or liabilities are recovered or settled. Deductible temporary differences give rise to deferred tax assets. A deferred tax assets arises if the carrying value of an asset is less than its tax base or if the carrying value of a liability is greater than its tax

deprecation. The tax depreciation rate for this type of plant is 25%. The company tax rate is