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Bài tập chủ đề “Lợi nhuận cổ phiếu” I.TRẮC NGHIỆM: Câu (ĐỀ THT): In determining diluted earnings per share, dividends on nonconvertible cumulative preference shares should be: Select one: a Disregarded b deducted from net income whether declared or not c added back to net income whether declared or not d deducted from net income only if declared diluted earnings per share : (là cổ tức ưu đãi nhưng: Dilutive khơng chuyển đổi phải trừ (-) chuyển đổi giữ nguyên) Câu (ĐỀ THT): Dilutive convertible securities must be used in the computation of Select one: a basic earnings per share only b diluted earnings per share only c diluted and basic earnings per share d None of these answers are correct Câu (ĐỀ THT): Earnings per share is calculated by: Select one: a dividing profit or loss attributable to preference shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period b dividing profit or loss attributable to ordinary shareholders of a parent entity, by the weighted average number of ordinary shares the entity has on issue during the reporting period c dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the beginning of the reporting period Select one: d dividing profit or loss attributable to ordinary shareholders of a parent entity, by the number of ordinary shares the entity has on issue at the end of the reporting period Câu (ĐỀ THT): Earnings per share is calculated by comparing an entity’s: a revenue with the number of ordinary shares it has on issue b profit with the number of ordinary shares it has on issue c revenue with the number of shareholders d profit with the number of shareholders Câu (ĐỀ THT): The profit or loss that is used in the calculation of basic earnings per share is calculated as: Select one: a Profit before tax expense – tax expense – preference dividends b Profit before tax expense – tax expense c Profit before tax expense – tax expense – ordinary dividends d Profit before tax expense Câu (ĐỀ THT): Any errors or adjustments resulting from changes in accounting policies that are accounted for retrospectively(hồi tố) require: Select one: a a retrospective adjustment to both basic and diluted earnings per share b no retrospective adjustment to either basic or diluted earnings per share c a retrospective adjustment to diluted earnings per share only d a retrospective adjustment to basic earnings per share only Câu (ĐỀ THT): Assume there are two dilutive convertible securities The one that should be used first to recalculate earnings per share is the security with the (EPIS) Select one: a smaller earnings effect per share b greater earnings effect per share Select one: c smaller earnings adjustment d greater earnings adjustment Câu (ĐỀ THT): Under paragraph 4, if an entity presents both consolidated (hợp nhất) and separate (tách biệt) financial statements, the IAS 33 disclosures need only be determined on the basis of: a consolidated information (only in consolidated) b parent entity only c subsidiary entities only d the entity has choice of either parent entity or consolidation Câu (ĐỀ THT): What effect will the acquisition of treasury shares have on shareholders' equity and earnings per share, respectively? Select one: a Decrease and no effect b Increase and no effect c Decrease and increase d Increase and decrease CPQ tăng => VSCH giảm => EPS tăng Câu 10 (ĐỀ THT): When applying the treasury share method for diluted earnings per share, the market price of the ordinary shares used for the repurchase is the (option, warrant) Select one: a None of these answers are correct b price at the beginning of the year c price at the end of the year d average market price Câu 11 (ĐỀ THT): When computing diluted earnings per share, convertible bonds are Select one: a assumed converted whether they are dilutive or antidilutive Select one: b assumed converted only if they are antidilutive c ignored d assumed converted only if they are dilutive Câu 12 (ĐỀ THT): When computing diluted earnings per share, convertible securities are: a recognized whether they are dilutive or antidilutive b recognized only if they are dilutive c ignored d recognized only if they are antidilutive Câu 13 (ĐỀ THT): The basic earnings per share and diluted earnings per share ratios must be presented in an entity’s: Select one: a statement of profit or loss and other comprehensive income even if the amounts are negative b statement of financial position even if the amounts are negative c statement of profit or loss and other comprehensive income only if the amounts are positive d statement of changes in equity even if the amounts are negative (negative + positive => luôn P/L + OCI) Câu 14 (ĐỀ THT): If the entity has a discontinued operation, then it must also calculate and disclose the: Select one: a the basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income only if the discontinued operation contributed a profit in the current reporting period b the diluted earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income c the basic and diluted earnings per share ratios for the discontinued operation in the statement of profit or loss and other comprehensive income d the basic earnings per share ratio only for the discontinued operation in the statement of profit or loss and other comprehensive income Select one: Câu 15 (ĐỀ THT): A company issues bonus shares for no consideration ( phí chuyển đổi sớm) on August 2014 For the reporting period ended 30 June 2015, the calculation of: Select one: a only the diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements b both basic earnings per share and diluted earnings per share may be adjusted retrospectively at the option of the entity for all periods that are presented in the financial statements c only basic earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements d both basic earnings per share and diluted earnings per share must be adjusted retrospectively for all periods that are presented in the financial statements (no consideration: k thay đổi => k tính trọng số => phải hồi tố: retrospectively) Câu 16 (ĐỀ THT): In applying the treasury share method to determine the dilutive effect of share options and warrants, the proceeds assumed to be received upon exercise of the options and warrants Select one: a are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less than the ending market price of ordinary shares b None of these answers are correct c are used to calculate the number of ordinary shares repurchased at the average market price, when computing diluted earnings per share d are added, net of tax, to the numerator of the calculation for diluted earnings per share Câu 17 (ĐỀ THT): If all of the dilutive securities were converted into ordinary shares, the diluted earnings per share ratio: Select one: a must include an adjustment to decrease the weighted average number of ordinary shares that would be outstanding b must include an adjustment to increase the weighted average number of ordinary shares that would be outstanding c may include an adjustment to increase the weighted average number of ordinary shares that would be outstanding d must include an adjustment to increase the number of ordinary shares that would be outstanding Câu 18 (ĐỀ THT): The number of shares used in the calculation of earnings per share is: Select one: a the number of ordinary and preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period b the average of the number of ordinary shares outstanding at the beginning (=> during: True) and end of the reporting period c the number of preference shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period d the number of ordinary shares adjusted by a time-weighting factor which is the number of days in the reporting period that the shares are outstanding as a proportion of the total number of days in the period Câu 19 (ĐỀ THT): In computing earnings per share for a simple capital structure, if the preference shares are cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the (preference dividend: năm trả năm đó) Select one: a annual preference dividend times (one minus the income tax rate) ( khơng có vế sau) b None of these answers are correct c preference dividends in arrears (trả sau) d preference dividends in arrears times (one minus the income tax rate) Câu 20 (ĐỀ THT): IAS 33 applies to the computation and presentation of earnings per share by: Select one: a only those entities that are in the process of issuing ordinary shares that will be traded in public markets b both reporting and non-reporting entities c reporting entities whose shares are publicly traded (đã giao dịch ), or of entities that are in the process of issuing ordinary shares that will be traded in public markets (đã phát hành) d only reporting entities whose shares are publicly traded Câu 21 (ĐỀ THT): In the diluted earnings per share computation, the treasury share method is used for options and warrants to reflect assumed reacquisition of ordinary shares at the average market price during the period If the exercise price of the options or warrants exceeds the average market price, the computation would Select one: a reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share b fairly present diluted earnings per share on a prospective basis c fairly present the maximum potential dilution of diluted earnings per share on a prospective basis d be antidilutive (In the money: Exercise < average Out of the money: Exercise > average) Câu 22 (ĐỀ THT): In computing earnings per share, the equivalent number of shares of convertible preference shares are added as an adjustment to the denominator (number of shares outstanding) If the preference shares are cumulative, which amount should then be added as an adjustment to the numerator (net earnings)? Select one: a Annual preference dividend times the income tax rate b Annual preference dividend times (one minus the income tax rate) c Annual preference dividend divided by the income tax rate d Annual preference dividend trái phiếu tính trước thuế [interest (1-tax)] Câu 23 (ĐỀ THT): Terry Corporation had 300,000 ordinary shares outstanding at December 31, 2019 In addition, it had 90,000 share options outstanding, which had been granted to certain executives, and which gave them the right to purchase Terry's shares at an option price of €37 per share The average market price of Terry's ordinary shares for 2019 was €50 What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2019? Select one: a None of these answers are correct b 366,600 c 300,000 d 331,622 e 323,400 300 + 90x(1- 37/50) Câu 24 (ĐỀ THT): Hill Corp had 600,000 ordinary shares outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of €1,050,000 for the year ending December 31, 2019 Earnings per share for 2019 would be Select one: a None of these answers are correct b €1.75 c €1.00 d €0.83 e €1.17 1050/(600+900*6/12) = 1050/(600*6/12+1500*6/12) Câu 25 (ĐỀ THT): Milo Co had 600,000 ordinary shares outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury shares on September 1, and issued 54,000 shares on November The weighted avera ge shares outstanding for the year is Select one: a 672,000 b 651,000 c 714,000 d None of these answers are correct e 693,000 600*4/12 + 726*4/12 + (726-63) *2/12 + (726-63+54)*2/12 = 600 + 126*8/12 – 63*4/12 +54*2/12 Câu 26 (ĐỀ THT): At December 31, 2018, Sager Co had 1,200,000 ordinary shares outstanding In addition, Sager had 450,000 shares of preference shares which were convertible into 750,000 ordinary shares During 2019, Sager paid £600,000 ordinary cash dividends and £400,000 preference cash dividends Net income for 2019 was £3,400,000 and the income tax rate was 40% The diluted earnings per share for 2019 is (rounded to the nearest penny) Select one: a £2.84 b None of these answers are correct c £1.24 d £1.74 e £2.51 (là Dilutive nên convertible khơng đụng đến dividend; nonconvertible trừ ra) 3.400/(1.200+750) Câu 27 (ĐỀ THT): XYZ Ltd has 10 000 ordinary shares on issue at July 2015 which is the beginning of its reporting period On May 2016, it issued a further 2000 ordinary shares for cash The weighted average number of shares for use in the earnings per share calculation is: Select one: a 12,000 shares b 10,000 shares c 11,000 shares d 10,333 shares 10+2*2/12 = 10*10/12 + 12*2/12 Câu 28 (ĐỀ THT): Nolte Co has 4,000,000 ordinary shares outstanding on December 31, 2018 An additional 200,000 shares are issued on April 1, 2019, and 480,000 more on September On October 1, Nolte issued €6,000,000 of 9% convertible bonds The bonds are dilutive Each €1,000 bond is convertible into 40 ordinary shares No bonds have been converted The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2019 is: Select one: a 4,310,000 and 4,370,000 b None of these answers are correct c 4,310,000 and 4,550,000 d 5,080,000 and 5,320,000 e 4,310,000 and 4,310,000 computing basic earnings per share = 4000+200*9/12 +480*4/12 = 4000*3/12 +4200*5/12 +4680 *4/12 = 4310 diluted earnings per share = 4310 + 6000/1000*40*3/12 = 4370 Câu 29 (ĐỀ THT): Fultz Company had 300,000 ordinary shares issued and outstanding at December 31, 2018 During 2019, no additional ordinary shares were issueD On January 1, 2019, Fultz issued 400,000 shares of nonconvertible preference shares During 2019, Fultz declared and paid €180,000 cash dividends on the ordinary shares and €150,000 on the nonconvertible preference shares Net income for the year ended December 31, 2019, was €960,000 What should be Fultz's 2019 earnings per share, rounded to the nearest penny? Select one: a None of these answers are correct Figure 13-1 84) In figure 13-1, with a expiration price of 110, the best return is obtained by (a) (b) (c) (d) buying futures buying a call option selling futures buying a put option (e) none of the above Answer: B Question Status: New 85) In figure 13-1, with a expiration price of 120, the best return is obtained by (a) (b) (c) (d) buying futures buying a call option selling futures buying a put option (e) none of the above Answer: A Question Status: New Figure 13-2 86) In figure 13-2, with a expiration price of 110, the best return is obtained by (a) (b) (c) (d) buying futures buying a call option selling futures buying a put option (e) none of the above Answer: C Question Status: New 87) In figure 13-2, with a expiration price of 120, the best return is obtained by (a) (b) (c) (d) buying futures buying a call option selling futures buying a put option (e) none of the above Answer: D Question Status: New 88) The main advantage of using options on futures contracts rather than the futures contracts themselves is that (a) interest rate risk is controlled while preserving the possibility of gains (b) interest rate risk is controlled, while removing the possibility of losses (c) interest rate risk is not controlled, but the possibility of gains is preserved (d) interest rate risk is not controlled, but the possibility of gains is lost Answer: A Question Status: Previous Edition 89) The main reason to buy an option on a futures contract rather than the futures contract is (a) (b) (c) (d) to reduce transaction cost to preserve the possibility for gains to limit losses remove the possibility for gains Answer: B Question Status: Previous Edition 90) The main disadvantage of hedging with futures contracts as compared to options on futures contracts is that futures (a) (b) (c) (d) remove the possibility of gains increase the transactions cost are not as an effective a hedge not remove the possibility of losses Answer: A Question Status: Revised 91) If a bank manager wants to protect the bank against losses that would be incurred on its portfolio of treasury securities should interest rates rise, he could (a) buy put options on financial futures (b) buy call options on financial futures (c) sell put options on financial futures (d) sell call options on financial futures Answer: A Question Status: Previous Edition 92) Hedging by buying an option (a) (b) (c) (d) limits gains limits losses limits gains and losses has no limit on option premiums (e) has no limit on losses Answer: B Question Status: Study Guide 93) All other things held constant, premiums on options will increase when the (a) exercise price increases (b) volatility of the underlying asset falls (c) term to maturity increases (d) (a) and (c) are both true Answer: C Question Status: Previous Edition 94) All other things held constant, premiums on call options will increase when the (a) exercise price falls (b) volatility of the underlying asset falls (c) term to maturity decreases (d) futures price increases Answer: A Question Status: Revised 95) An increase in the exercise price, all other things held constant, will the call option premium (a) (b) (c) (d) increase decrease increase or decrease Not enough information is given Answer: B Question Status: Revised 96) All other things held constant, premiums on options will increase when the (a) exercise price increases (b) volatility of the underlying asset increases (c) term to maturity decreases (d) futures price increases Answer: B Question Status: Previous Edition 97) An increase in the volatility of the underlying asset, all other things held constant, will the option premium (a) increase (b) decrease (c) increase or decrease (d) Not enough information is given Answer: A Question Status: Previous Edition 98) A tool for managing interest rate risk that requires exchange of payment streams is a (a) futures contract (b) forward contract (c) swap (d) micro hedge (e) macro hedge Answer: C Question Status: Study Guide 99) A financial contract that obligates one party to exchange a set of payments it owns for another set of payments owned by another party is called a (a) hedge (b) call option (c) put option (d) swap Answer: D Question Status: Revised 100) A swap that involves the exchange of a set of payments in one currency for a set of payments in another currency is a(n) (a) (b) (c) (d) interest rate swap currency swap swaptions national swap Answer: B Question Status: Previous Edition 101) A swap that involves the exchange of one set of interest payments for another set of interest payments is called a(n) (a) (b) (c) (d) interest rate swap currency swap swaptions national swap Answer: A Question Status: Previous Edition 102) A firm that sells goods to foreign countries on a regular basis can avoid exchange rate risk by (a) buying stock options (b) selling puts on financial futures (c) selling a foreign exchange swap (d) buying swaptions Answer: C Question Status: Previous Edition 103) The most common type of interest rate swap is (a) the plain vanilla swap (b) (c) (d) (e) the basic swap the swaption the notional swap the ordinary swap Answer: A Question Status: New 104) If Second National Bank has more rate-sensitive assets than rate-sensitive liabilities, it can reduce interest rate risk with a swap that requires Second National to (a) (b) (c) (d) pay fixed rate while receiving floating rate receive fixed rate while paying floating rate both receive and pay fixed rate both receive and pay floating rate Answer: B Question Status: Previous Edition 105) If a bank has more rate-sensitive assets than rate-sensitive liabilities (a) it reduces interest rate risk by swapping rate-sensitive income for fixed rate income (b) it reduces interest rate risk by swapping fixed rate income for rate-sensitive income (c) it increases interest rate risk by swapping rate-sensitive income for fixed rate income (d) it neutralizes interest rate risk by receiving and paying fixed-rate streams (e) it cannot reduce its interest rate risk Answer: A Question Status: New 106) If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap that requires Second National to (a) (b) (c) (d) pay fixed rate while receiving floating rate receive fixed rate while paying floating rate both receive and pay fixed rate both receive and pay floating rate Answer: A Question Status: Previous Edition 107) One advantage of using swaps to eliminate interest rate risk is that swaps (a) are less costly than futures (b) are less costly than rearranging balance sheets (c) are more liquid than futures (d) have better accounting treatment than options Answer: B Question Status: Previous Edition 108) A advantage of using swaps to hedge interest rate risk is that swaps (a) are less costly than futures (b) can be written for long horizons (c) are not subject to default risk (d) are more liquid than futures (e) have better accounting treatment than options Answer: B Question Status: New 109) The disadvantage of swaps is that they (a) lack liquidity (b) are difficult to arrange for a counterparty (c) suffer from default risk (d) all of the above Answer: D Question Status: Previous Edition 110) A disadvantage of using swaps to control interest rate risk is that (a) swaps cannot be written for long horizons (b) swaps are more expensive than restructuring balance sheets (c) swaps, like forward contracts, lack liquidity (d) all of the above are disadvantages of swaps (e) only (a) and (b) of the above are disadvantages of swaps Answer: C Question Status: Study Guide 111) The problems of default risk and finding counterparties for interest rate swaps has been reduced by (a) government regulation (b) writing complex contracts (c) commercial and investment banks serving as intermediaries (d) all of the above (e) both (b) and (c) of the above Answer: C Question Status: New Essay Questions 1) What is arbitrage? Explain why arbitrage drives the contract price of futures to the price of the underlying asset on the expiration date, for prices above and below the asset price Answer: Arbitrage is the riskless elimination of profit opportunities in futures markets If the contract price is 111, and the asset price is 110, contracts will be sold at 111,000 and the asset purchased for $110,000 The bonds will be purchased at the market price and delivered to fulfill the contract, for a profit of $1000 This will continue until the contract price falls to equal the asset price Similarly, if the contract price is 109, and the asset price is 110, everyone will buy the contract, and sell the bond for $110,000 after buying it for $109,000 on the market Again, this activity will drive up the bond price and drive down the asset price until they are equal 2) Explain the margin requirement for financial futures and how marking to market affects the margin account Answer: Each contract requires a margin deposit of a specified amount Each day futures contracts are marked to market This means that each day the margin account is changed by the gain or loss of value of the contract Assuming a contract of 110, if the settlement (closing) price falls to 109, the $1000 loss is subtracted from the account and an additional $1000 must be added to the margin account Conversely, a rise in the contract price to 111 means the $1000 profit is added to the account, increasing the value of the account above the required minimum 3) Show graphically and explain the profits and losses of buying futures relative to buying call options Answer: As shown in the graph, the profit-loss function for futures is linear Both gains and losses grow linearly for each $1 change in the underlying security price at expiration The profit curve for options is nonlinear The loss is limited to the amount of the premium Profits are a linear function of the asset price at expiration, but profits from options are always less than for futures by the amount of the premium The key differences are that options losses are limited, while futures losses are not Gains for futures and options are linear functions of the expiration price, but option profits are always less than futures profits by the amount of the premium MULTIPLE-CHOICE QUESTIONS IAS 12 Standards require or permit certain items to be credited, or charged, directly to equity or other comprehensive income Examples of such items are: (i) A change in carrying amount arising from the revaluation of property, plant and equipment (ii) An adjustment to the opening balance of retained earnings, resulting from either a change in accounting policy applied retrospectively, or the correction of an error IAS has seriously limited this application (iii) Exchange differences, arising on the translation of the financial statements of a foreign undertaking (iv) Amounts arising on initial recognition of the equity component of a compound financial instrument a (i), (ii) and (iii) only b (i) only c (i) and (ii) only d (i) to (iv) all When different rates of tax apply to different types and amounts of taxable income: a Each item must be listed b An average rate is used c.No deferred tax is charged IAS 12 prescribes the accounting treatment for income taxes, and the tax consequences of: (1) Transactions of the current period that are recorded in an undertaking's financial statements; (2) The future liquidation of the of assets and liabilities that are recorded in an undertaking's statement of financial position; and (3) Tax planning opportunities a and only; b only; , 1,2 and all; d and Permanent differences require: a Provision c Deferred tax liability (or deferred tax asset) b Contingent liability d None of these IAS 12 prescribes the accounting treatment for income taxes, and the tax consequences of: (i) Transactions of the current period that are recorded in an undertaking's financial statements (ii) The future liquidation of the of assets and liabilities that are recorded in an undertaking's balance sheet (iii)Tax planning opportunities a (i) b (i)-(ii) c (i)-(iii) Deferred tax relates to: (i) Deductible temporary differences; (ii) Unused tax losses; (iii) Unused tax credits; (iv) Taxable temporary differences; (v) permanent differences a (i) to (v) all; b (i) and (ii) only c (i), (ii) and(iii) only d (i), (ii), (iii) and (iv) only Not all temporary differences are recognised as deferred tax balances The exceptions are: (i) Goodwill; (ii) Initial recognition of certain assets and liabilities, (iii) Certain investments, (iv) Property revaluations a (i) b (i)-(ii) c (i)-(iii) d (i)-(iv) Current tax should be measured using tax rate and tax law that: a Have been enacted by the end of the reporting period b Have been enacted by the date that the financial statements are authorized for issue c Have been enacted or substantively enacted by the end of the reporting period d Have been enacted or substantively enacted by the date that the financial statements are authorized for issue Under IAS 12, if tax base of an asset is higher than its carrying amount, a temporary different is a taxable b deductible c either taxable or decutible d neither taxable or deductible 10.Deferred tax asset are the taxes recoverable, in future periods, in respect of: (ii) Deductible temporary differences; (ii) Unused tax losses; (iii) Unused tax credits; (iv) Taxable temporary differences a i and ii only; b i to iv all c.i only; d.i,ii,iii only 11.If revenue is taxed in the period received, the tax base: a Is only nil if the revenue is recognized in the following period b Is only nil if the revenue is recognized in the same period c Is the amount received d Is nil 12 A tax base of an asset or a liability is: a The amount that can be deductible in the future tax return with respect to that asset or liability b Difference between the temporary difference of that asset or liability and its fair value c The amount attributed to that asset or liability for tax purposes d Difference between the temporary difference of that asset of liability and the present value of future cash flows derived from that asset or liability 13 The difference between the carrying amount of a revalued asset and its tax base is a: a.Temporary difference b Permanent difference c Either a or b 14 Research and development costs may be expensed in the current period, but deductible for tax purposes over subsequent periods The tax base: a.Is nil b.Is the amount of the deduction that can be claimed in future periods c.Is the amount expensed 15.Temporary differences arise: a When deferred tax differs from current tax b When the carrying amount of an asset or liability differs from its tax base c When deferred tax is applied 16.Taxable temporary differences occur when tax is charged in a period: a before the accounting period benefits from the income is recognized in the financial accounts b After the accounting period benefits from the income is recognized in the financial accounts c Either before or after the accounting period benefits from the income is recognized in the financial accounts 17 Differences arising from fair value adjustments are treated: a The same as any other taxable and deductible differences b Separately for deferred tax c Differently depending on whether they arise on acquisition or otherwise 18 Which of the following statements is true? a When carrying amount of an asset is lower than its tax base, then taxable temporary difference arises b When carrying amount of an asset is greater than its tax base, then deductible temporary difference arises c Taxable temporary differences result in a deferred tax asset and deductible temporary differences result in a deferred tax liability d Taxable temporary differences result in a deferred tax liability and deductible temporary differences result in a deferred tax asset 19 Temporary differences arise: a.When the carrying amount of an asset or liability differs from its tax base b.When deferred tax is applied c.When deferred tax differs from current tax 20 A deductible temporary difference generates a a Deferred tax Liability b Deferred tax Asset c.Either a or b 21 A taxable temporary difference gives rise to: a.Deferred tax Liability b Deferred tax Asset c Either a or b 22 Taxable temporary differences occur when tax is charged in a period: a.Before the accounting period benefits from the income in the financial accounts b.After the accounting period benefits from the income in the financial accounts c Either a or b 23 Deductible temporary differences occur when tax is charged in a period: a.Before the accounting period benefits from the income in the financial accounts b.After the accounting period benefits from the income in the financial accounts c.Either a or b 24 Differences arising from fair value adjustments are treated: a.The same as any other taxable and deductible differences b Differently depending on whether they arise on acquisition or otherwise c Separately for deferred tax 25 If the tax already paid exceeds the tax due for the period, the excess will be recorded as: a.Deferred tax b.A permanent difference c.An asset 26 Permanent differences require adjustments in the: a Periods prior to the transaction c.The periods relating to the transaction b Periods following the transaction d Both b & c 27 The difference between the carrying amount of a revalued asset and its tax base is a: a Temporary difference b Permanent difference c It can either be temporary difference or a permanent difference 28 An entity is undertaking a reorganization Under the plan, part of the entity’s business will be demerged and will be transferred to a separate entity, Entity Z This also will involve a transfer of part of the pension obligation to Entity Z Because of this, Entity Z will have a deductible temporary difference at its year-end of December 31, 20X4 It is anticipated that Entity Z will be loss-making for the first four years of its existence, but thereafter it will become a profitable entity The future forecasted profit is based on estimates of sales to intergroup companies Should Entity Z recognize the deductible temporary difference as a deferred tax asset? a The entity should recognize a deferred tax asset b Management should not recognize a deferred tax asset as future profitability is not certain c The entity should recognize a deferred tax asset if the authenticity of the budgeted profits can be verified d The entity should recognize a deferred tax asset if the intergroup profit in the budgeted profit is eliminated 29.The carrying amount of a deferred tax asset should be reviewed for: (i)Changes in tax rates; (ii)Changes in the expected manner of recovery of an asset; and (iii)Changes in future profits a i only; b i,ii and iii all; c i and ii only d i and iii only 30.Not all temporary differences are recognised as deferred tax balances The exceptions are: (i)Goodwill; (ii) Initial recognition of certain assets and liabilities; (iii)Certain investments; (iv)Property revaluations b i and ii only; b i to iv all; c.i only d.i, ii and iii only 31 Deferred tax asset shall be recognized: a For all taxable temporary differences including the goodwill arising on business combination b For all taxable temporary differences, to the extent that it is probable that taxable profit will be available against which the taxable temporary difference can be utilised c For all deductible temporary differences including the goodwill arising on business combination d For all deductible temporary differences, to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised 32 Deferred tax shall never be recognized for: a Machinery revalued to its fair value b Tax losses and tax credits c Research expenses paid in previous periods that are not shown in the statement of financial position but will be tax deductible in the future d Goodwill arising on business combination 33.Deferred tax shall be measured at the tax rates that are: a Enacted by the end of the reporting period and expected to apply in the future These tax rate shall be adjusted by the inflation b Enacted and apply in the current reporting period c Enacted or substantively enacted by the end of the reporting period and expected to apply when the related asset / liability is realised d Enacted or substantively enacted by the end of the reporting period; expected to apply when the related asset / liability is realised and adjusted for the time value of money (discounting) 34 An undertaking should review unrecorded deferred tax assets to determine whether new conditions will permit the recovery of the asset: a.Every years b.Every years c.At each balance sheet date 35 The carrying amount of a deferred tax asset should be reviewed for: (i) Changes in tax rates; (ii) Changes in the expected manner of recovery of an asset; (iii) Changes in future profits a (i), b.(i)-(ii), c.(i)-(iii) 36 The realisation of deferred tax assets depends on: a.Accounting profits being available in the future b.Taxable profits being available in the future c.No increase in the rate of income tax 37 When different rates of tax apply to different types and amounts of taxable income: a.An average rate is used b.No deferred tax is charged c.Each item must be listed Answer : a skill: basic section: 7.3.3 38 Deferred tax assets are the taxes recoverable, in future periods, in respect of: (i) Deductible temporary differences; (ii) Unused tax losses; (iii)Unused tax credits (iv)Taxable temporary differences a (i) b (i)-(ii) c (i)-(iii) d (i)-(iv) 39 Deferred tax a Reverses over time b May reverse over time c Does not reverse Answer : a skill: basic section: 7.3.3 39 The use of deferred tax: a.Change the dates of payment of tax b.May change the dates of payment of tax c.Does not change the dates of payment of any tax 40 Deferred tax should be accounted for in relation to certain differences between taxable profit and accounting profit The differences which require an entity to account for deferred tax are: a Temporary differences b Permanent differences c Both temporary differences and permanent differences d Neither temporary differences nor permanent differences