Isaac Inc. began operations in January 2013. For certain of its property sales,

ID: 2647047 • Letter: I

Question

Isaac Inc. began operations in January 2013. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments.

In 2013, Isaac had $679 million in sales of this type. Scheduled collections for these sales are as follows:

176 million

$679 million

Assume that Isaac has a 26% income tax rate and that there were no other differences in income for financial statement and tax purposes.

Suppose that, in 2014, legislation revised the income tax rates so that Isaac would be taxed in 2015 and beyond at 36%, rather than 26%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet? (Round your answer to the nearest whole million.)

Explanation / Answer

Measurement of deferred tax Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. [IAS 12.47] The measurement reflects the entity's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled. [IAS 12.51] Recognition of deferred tax liabilities The general principle in IAS 12 is that a deferred tax liability is recognised for all taxable temporary differences. Deferred tax liabilities The amounts of income taxes payable in future periods in respect of taxable temporary differences Conclusion: The Deferred Taxation creates when there seems timing difference viz. between amount of depreciation charged as per books and as per income tax rules . NO permanent differences will arise any deffered tax liability. So in the above question we have no taxation amount that is a timing difference.

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Isaac Inc. began operations in January 2013. For certain of its property sales,

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Isaac Inc. began operations in January 2013. For certain of its property sales,

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