Accounting Q&A · Taxation · Topic 4
Practise corporate tax reconciliations, current and deferred tax, instalments and filing controls. Try each question before opening the answer. The examples use hypothetical amounts and rates. Check the rules for your jurisdiction and tax year before applying them.
Worked example
Accounting profit is 100,000. Add back 8,000 of disallowed costs and deduct 3,000 of exempt income. At an illustrative 20% rate, current tax is 21,000 before credits.
Key concepts
1. What is corporate income tax?
A tax on corporate taxable profit under applicable law.
2. Why reconcile book profit to taxable profit?
Tax rules and accounting rules recognise some items differently.
3. What is an add-back?
An amount added to book profit for tax purposes, such as a disallowed expense.
4. What is a permanent difference?
A difference that does not reverse in a later tax period.
5. What is a temporary difference under IAS 12?
A difference between carrying amount and tax base.
6. What is current tax?
Income tax payable or recoverable on taxable profit or loss for the period.
7. What is deferred tax?
The future tax effect of qualifying temporary differences and certain unused losses or credits.
8. What is an asset’s tax base?
The amount deductible against taxable economic benefits from recovering it, subject to IAS 12 rules.
9. Book profit is 70,000 with a 5,000 add-back. What is taxable profit?
75,000 if there are no other adjustments.
10. At 20%, what is tax before credits?
15,000.
Applying the rules
11. If eligible instalments total 11,000, what remains?
4,000 before other adjustments.
12. An asset carries at 50,000 with a tax base of 40,000. What is the taxable temporary difference?
10,000, assuming recovery produces taxable benefits.
13. At 25%, what deferred tax liability results if recognition applies?
2,500.
14. Why track losses by year?
Expiry, carry-forward and use restrictions can vary.
15. Can a loss automatically create a deferred tax asset?
Recognise only to the extent the applicable criteria are met, including availability of taxable profit.
16. Which rate measures deferred tax under IAS 12?
Use enacted or substantively enacted rates expected to apply on reversal.
17. What is an instalment?
An advance payment toward a period’s tax liability.
18. What is a tax provision reconciliation?
A schedule linking expense and balances to calculations, payments and changes.
19. Why maintain a filing calendar?
Track returns, payments and supporting submissions by entity and period.
Review questions
20. Why separate legal entities in a tax workbook?
Each entity may have distinct filing, residence and relief rules.
21. What records support expense deductions?
Invoices, contracts, payment evidence and business-purpose documentation.
22. Why review related-party charges?
Pricing and deductibility may require additional evidence.
23. What makes tax planning defensible?
Commercial rationale, accurate facts and support under the applicable rules.
24. What should a reviewer check before filing?
Verify adjustments, rates, credits, sign-off and payment instructions.
25. How do you close the compliance process?
Retain filed copies, receipts and evidence, then reconcile the ledger.
Official reference for Corporate Tax Planning and Compliance.