Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Gravatt Ltd, which operates in the mining industry, decided not to comply with the accounting standard AASB112 on tax-effect accounting. If it had done so, its profit would have been significantly reduced. The annual report of the company revealed that the auditors had qualified the accounts. The auditors noted that no deferred tax liability had been recognised, in contravention of the accounting standard.
Gravatt Ltd declared a profit of $54 million for the year, with no tax expense, but it admitted in the notes to the accounts that it would have had a notional income tax expense of $24.3 million if it had followed the accounting standard.
The company also would have had a deferred tax liability of $80 million if it had followed the standard. This compares with total equity of $570 million.
The directors believed that neither current tax liability nor a deferred tax liability was necessary as the company was making tax losses because of huge allowable deductions available for exploration and development costs. These exploration and development costs were treated as assets in the accounting records.
The directors stated that a deferred tax liability should be recorded only when it is probable that the company will be liable to pay income tax. At this stage it is unclear when that will be.

Required
1. describe how exploration and development costs create a deferred tax liability.
2. Analyse the arguments presented by the directors in light of the AASB Framework for the Preparation and Presentation of Financial Statements and the requirements of AASB 112 Income Taxes, and discuss the information utility to readers of Gravatt Ltd's annual report of including/excluding the deferred tax liability.

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M939994

Have any Question? 


Related Questions in Accounting Basics

After reading the article ernst amp youngs liability for

After reading the article "Ernst & Young's Liability for Lehman Larger Than Claimed," Discuss Ernst & Young's "going-on" liability after their 2007 arbitrary cutoff of responsibility from Lehman Brothers financial statem ...

Transactions and fasb standards1 the new city college

Transactions and FASB Standards 1. The New City College reported deferred revenues of $612,000 as of July 1, 2014, the first day of its fiscal year. Record the following transactions related to student tuition and fees a ...

Accounting systems and assurance assessment internal

Accounting Systems and Assurance Assessment: Internal Control and information quality Accounting students learn how to process, analyse and use accounting information. It is also necessary to learn what contributes to th ...

Garner company began operations on january 1 2010 and uses

Garner Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for th ...

How do finance and accounting play a role in ethics and

How do finance and accounting play a role in ethics and sustainable positive social change? How might you use accounting or finance to support this role that you described above?

Accounting information systemsquestion 1a describe five

Accounting Information Systems Question 1 a) Describe five technologies that can support electronic commerce. b) List and explain five main reasons for implementing AIS in organizations. c) What is the role of a database ...

Assignmentcarol is a single mother who owns a wholesale

Assignment Carol is a single mother who owns a wholesale auto parts distributorship. The business is organized as a sole proprietorship. Her business has advanced, and she can no longer devote the time necessary to do he ...

- discuss the pros and cons of leasing vs purchasing a

- Discuss the pros and cons of leasing vs purchasing a fleet of business vehicles for a client's business, (assume the loan rate on purchasing the vehicles is 6% and the implicit interest rate in the lease is also 6%). - ...

Case 2b - mendel paper companymendel paper company produces

CASE 2B - MENDEL PAPER COMPANY Mendel Paper Company produces four basic paper product lines at one of its plants: computer paper, napkins, place mats, and poster board. Materials and operations vary according to the line ...

Individual project instructionsobjectiveyour objective is

Individual Project Instructions OBJECTIVE Your objective is to use analytical tools to understand and improve business performance and to present your analysis using effective data visualizations in a dashboard format. F ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen