9. Provisions and Deferred Taxation Flashcards

1
Q

What is a provision?

A

A liability of uncertain timing or amount

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2
Q

What are the 3 criteria that must all be met for a provision to be recognised?

A
  1. Present obligation as a result of a past event
  2. Probable that an outcome of economic resources will be required
  3. A reliable estimate can be made
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3
Q

Where is the change in provision from year to year recorded?

A

In the P&L

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4
Q

What are the two types of obligation a company may have to record a provision for?

A

Legal or Constructive

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5
Q

What are the 2 conditions that restructuring must meet in order to be provided for?

A

Detailed formal plan and expectation has been raised with those affected

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6
Q

What are 3 key examples of costs that can be provided for?

A
  1. Restructuring
  2. Decomissioning
  3. Expected warranty payouts
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7
Q

Can you provide for future operating losses?

A

No

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8
Q

What is an onerous contract?

A

One in which the unavoidable costs of meeting the obligations exceed the economic benefits expected to be received from it

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9
Q

Under an onerous contract, what should the provision be measured at?

A

The lower of the net cost of fulfilling the contract and penalties payable for withdrawing

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10
Q

What is a contingent liability?

A

Either a possible obligation dependent on future events, one that is not probable or one that amounts cannot be reliably measured for

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11
Q

How are contingent liabilities and assets recognised?

A

In disclosure ONLY

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12
Q

What is current tax?

A

Income tax payable for the period (direct tax)

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13
Q

How is current tax recorded?

A

Dr Income Tax Expense P&L

Cr Income Tax Liability SFP

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14
Q

What is deferred tax?

A

An accounting adjustment which matches recorded accounting transactions which the related tax effects where these occur in different periods

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15
Q

What are temporary differences in regards to deferred taxation?

A

Differences between the carrying amount of an asser or liability in the SFP and its tax base

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16
Q

How do you calculate the deferred tax provision?

A

Difference between Carrying Amount and Tax WDV, multiplied by the tax rate

17
Q

Where is the deferred tax from revaluation gains recorded in the SFP?

A

Dr Reval Surplus

Cr Deferred Tax Provision

18
Q

What amount goes to the P&L for deferred tax each year?

A

The difference between the deferred tax liability at the previous year end and at this year end (not including revl deferred tax)