IFRS for SMEs) IFRS for SMEs Income Taxes and Deferred Tax 2 — Questions and Answers
Question 1: Under IFRS for SMEs, where is the income tax expense related to items recognized in other comprehensive income (OCI) presented?
- In other comprehensive income, not in profit or loss (Correct answer)
- Always in profit or loss
- As a direct deduction from equity
- In the notes only, not in the primary statements
Correct answer: In other comprehensive income, not in profit or loss
Tax effects of items recognized in OCI are themselves recognized in OCI to ensure the tax follows the transaction it relates to.
Question 2: Under IFRS for SMEs, a taxable temporary difference arises when:
- An event results in a higher tax base than carrying amount for a liability
- An asset's carrying amount exceeds its tax base (Correct answer)
- Tax losses are available for carry-forward
- An entity uses the cash basis for tax purposes
Correct answer: An asset's carrying amount exceeds its tax base
A taxable temporary difference occurs when the carrying amount of an asset exceeds its tax base, creating a future taxable amount when the asset is recovered.
Question 3: Under IFRS for SMEs, deferred tax assets and liabilities should be presented in the balance sheet as:
- Non-current assets and liabilities (Correct answer)
- Current assets and liabilities
- Separated between current and non-current based on expected reversal
- Netted against current income tax payable
Correct answer: Non-current assets and liabilities
IFRS for SMEs classifies deferred tax assets and liabilities as non-current, reflecting their long-term nature.
Question 4: An SME has unused tax losses. Under IFRS for SMEs, a deferred tax asset for those losses is recognized when:
- It is probable that future taxable profits will be available against which the losses can be utilized (Correct answer)
- The entity has a history of profitable operations
- Management has a formal tax planning strategy
- The losses are confirmed by tax authorities
Correct answer: It is probable that future taxable profits will be available against which the losses can be utilized
A deferred tax asset for unused tax losses is recognized only when it is probable that sufficient future taxable profit will be available to absorb the losses.
Question 5: Under IFRS for SMEs, deferred tax assets and liabilities may be offset when:
- The entity has a legally enforceable right to set off current tax assets and liabilities and they relate to taxes levied by the same authority (Correct answer)
- Management decides to present them net
- Both balances are immaterial individually
- The entity operates in a single tax jurisdiction
Correct answer: The entity has a legally enforceable right to set off current tax assets and liabilities and they relate to taxes levied by the same authority
Offsetting of deferred tax assets and liabilities is only permitted when there is a legally enforceable right and they relate to income taxes levied by the same taxation authority.
Question 6: Under IFRS for SMEs, which event would trigger a reassessment of an unrecognized deferred tax asset?
- An improvement in future trading conditions making it probable that future taxable profits will be available (Correct answer)
- Receipt of a dividend from a subsidiary
- A change in the entity's auditor
- Payment of current year income tax
Correct answer: An improvement in future trading conditions making it probable that future taxable profits will be available
At each reporting date, an SME must reassess unrecognized deferred tax assets, and if it becomes probable that sufficient future taxable profit will exist, the asset should then be recognized.
IFRS for SMEs) IFRS for SMEs Income Taxes and Deferred Tax 2
Under IFRS for SMEs, where is the income tax expense related to items recognized in other comprehensive income (OCI) presented?