Question 1

AB's financial information shows that thenon current assets' carrying value is greater than the tax base at the year end.

What is the journal entry to record the movement in the provision for deferred tax resulting from this difference?

Options :

A : Dr Deferred tax provisionCr Tax expense

B : Dr Deferred tax provisionCr Other comprehensive income

C : Dr Tax expenseCr Deferred tax provision

D : Dr Other comprehensive incomeCr Deferred tax provision

Answer: C

Question 2

On 1 January 20X7 GH purchased plant and equipment at a cost of $400,000. The temporary differences in respect of this plant and equipment at 31 December 20X7 and 20X8 have been calculated as follows:

Assume that there are no other temporary differences in the periods and that the corporate income tax rate is 25%. GH is expected to have significant taxable profits in the future.

Which of the following is the correct impact in GH's statement of financial position at 31 December 20X8 in respect of deferred tax?

Options :

A : Increase in the deferred tax asset.

B : Increase in the deferred tax liability.

C : Decrease in the deferred tax asset.

D : Decrease in the deferred tax liability

Answer: A

Question 3

The tax benefit on a company's asset is 180,000 and the useful life on that asset is five years. The company creates a deferred tax provision to spread this benefit over the asset's useful life.

What entry is needed to reduce this deferred tax provision in the company's year two accounts?

Options :

A : DR Deferred tax liability (SOFP) 36,000

B : CR Deferred tax liability (SOFP) 36,000

C : DR Corporation tax (income statement) 36,000

D : CR Corporation tax (income statement) 36,000

E : DR Deferred tax liability (SOFP) 144,000

F : CR Deferred tax liability (SOFP) 144,000

G : DR Corporation tax (income statement) 144,000

H : CR Corporation tax (income statement) 144,000

Answer: A

Question 4

MNO is listed on its local stock exchange. It has a high level of gearing compared to the industry average as a result of rapid expansion funded by debt. The directors of MNO would like to reduce the level of gearing by raising equity to fund the next expansion project. The directors are considering whether to use a placing of new shares or a rights issue.

Which of the following statementsis true?

Options :

A : A rights issue would not need to be underwritten because the risk of the shares not being taken up is small compared to a placing.

B : The administration costs associated with a placing are usually more expensive than a rights issue because less investors are involved.

C : A placing will increase the proportion of the total number of MNO-s shares held by large investors.

D : The directors must use a placing before offering the rights issue to existing shareholders.

Answer: C

Question 5

Ratios have been produced below for EF for the year to 31 March:

Which TWO of the following could explain themovement in both gearing and ROCE?

Options :

A : A rights issue on 31 March 20X3.

B : A debt issue on 31 March 20X3.

C : A revaluation upwards on the head office property on 1 April 20X2.

D :

A bonus issue of shares on 1 April 20X2.

E : A bank loan to purchase new machinery on 31 March 20X3.

Answer: A,C

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