Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes

At 31 December 20X5 Orion Co has deductible temporary differences of $120,000 and a tax rate of 25%. Orion also has taxable temporary differences of $200,000 that will reverse in the same periods and in the same tax authority. Orion expects no other taxable profits. Which amount of deferred tax asset can be recognised for the deductible differences?

Orion can recognise a deferred tax asset of $30,000, being $120,000 x 25%. The taxable temporary differences of $200,000 reverse in the same periods with the same authority, so they supply enough taxable profit against which the deductible differences will be used.

  1. A$0
  2. B$30,000Correct
  3. C$50,000
  4. D$20,000

Explanation

Taxable temporary differences of $200,000 exceed the deductible differences of $120,000 and reverse in the same periods, so they provide sufficient taxable profit. The asset is 120,000 x 25% = $30,000. The $50,000 figure wrongly uses the taxable differences as the base, and recognising nil ignores the available taxable differences.

Did you get it right without looking?

One question tells you little. A timed set on Income taxes shows your real accuracy, how long you take and where you lose marks.

Practise Income taxesFree diagnostic mock

More Income taxes questions