Name: Income Tax Accounting (IFRS) | Example Facts - Part 1 of 4
Uploaded: 2017-06-23T14:09:49.000Z
Duration: 4 min 28 s
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Catherine Duffy: Hi, I’m Catherine Duffy, and we’re about to get started on a video

series. It’s going to take you temporary difference income tax accounting method, under

IFRS, applying the Canadian tax laws in the example. So, the first thing we’re going

to get looking at, are some base facts to start an example with.

So there are the facts of the income tax situation that I’m going to use to illustrate the

tax accounting. So, just to remind everybody, the method of tax accounting that we’re

using here is under, IFRS, called the temporary difference method, and it sometimes referred

to as differed tax accounting method. So, that’s what we’ll be applying in this

example. The tax rates that I’ve made up for this situation were for the base here

form last year to 2015 as well as the current year which is the year we’re going to be

doing the tax accounting for, or 20%. And then from every year from 2017, and beyond,

we’ll assume a tax rate of 15%, and that’s known right now in the year 2016. Other facts

that are relevant to the tax accounting for this year, are the property plant and equipment

assets, which I’ll use the abbreviation, PPE sometimes. Given at the end of last year,

December 31st, 2015, they had a netbook value of $40,000. So, a gross value of $55,000,

accumulation, depreciation of 15%, but, the only thing that’s relevant here for the

tax accounting is the netbook value of 40,000, and we’ll assume that they’ll depreciate

$2,000, a year, straight-line basis. So, in 2016, it will be another $2,000 of depreciation

expense booked. The depreciated capital cost allowance in the short form you see for tax

purposes December 31st, 2015, the UCC was 25,000, we’ll assume, a made up tax class

that has a CCA or capital cost allowance rate of 12%, for this particular class of assets.

And then, the other relevant fact for this tax accounting situation is that, at the end

of last year, December 2015, there was a warranty liability that had been accrued, but not spent

yet, of $80,000. These tax facts are all based on the Canadian tax act as it stands right

So, more facts that are relevant to the 2016 fiscal year that we’re doing the tax accounting

entries for. You need to have a starting point, and, the best starting point is usually the

accounting net income, which is $80,000 before tax, journal entries booked. Other fact that

are going to be relevant to this tax accounting situation that have already been accounted

for, in the financial statements in the general ledger for 2016, include the following items,

we’ve got: depreciation expense, that was booked, of $2,000, we’ve got dividend income

from Canadian corporations of $8,000 that’s been recorded. There were some fines paid

for some type of item that was fined this year. $3,000, that’s been expensed, in the

$80,000 or net income. There were some repairs done to some products that we sold in prior

years, and we’ve accrued a warranty on that, as you saw on the original facts, that there

was a warranty liability. And, the repairs that were done cost us $8,500 this year and

would have been just charged against the warranty, and not the need to be expensed. There’s

a restructuring liability that was accrued this year, that was expensed, of $10,000,

because we planned to shut down a location next year. None of that is supposed to be

expensed yet, so there is still a $10,000 liability in our balance sheet. There is rental

income that has been accrued, and is sitting in receivables still, of $6,000. It was earned

this year, but has not yet been collected. And finally, there has been some meals and

entertained expenses of $7,500 were booked for this year, and, we’ll come to that,

but, only 15% of those meals and entertainment expenses are deductible for tax purposes.

Okay, those are the facts that we’re going to use for this example, so thanks for watching,

and, whenever you’re ready, move on to the next video, which will take you through the

step one calculation of current income tax expense.