Ask Question, Ask an Expert


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.

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.:- M939936

Have any Question? 

Related Questions in Accounting Basics

Printing and distribution of invoices does not constitute

Printing and distribution of invoices does not constitute an increase in economic resources. On the other hand, can you give examples of what should be included in REA diagram? Remember that REA specifies the domain rule ...

Provide a three page discussion in pdf to address the

Provide a three page discussion in PDF to address the following: • Changes to Rev Rec since initial issuance propose impact • Changes to IFRS 9 since initial issuance propose impact • Summary of the latest IFRS since 8 e ...

Accounting for managers assignment- question 1 -bonza

Accounting for Managers Assignment- Question 1 - Bonza Handtools Ltd. manufactures a popular power drill suitable for the home renovator. Financial and other data for this product for the last twelve months are as follow ...

Note answer each question completely by supporting

Note: Answer each question completely by supporting conclusions, but do so in a clear and concise manner. I am looking for your explanation 'in your words'; not another authors summary. Therefore, excessive citing of mat ...

Identifying account titles-the following are independent

Identifying Account Titles- The following are independent situations. a. A new company is formed and sells 100 shares of stock for $12 per share to investors. b. A company purchases for $18,000 cash a new delivery truck ...

Valuation of accounts receivablesbulldiscuss the primary

Valuation of Accounts Receivables • Discuss the primary advantages and disadvantages of applying the direct write-off and the allowance method of writing off accounts. Even though the direct write-off method is not accep ...

Nbspcomplete all requirements which are listed

COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW. REQUIREMENT #1: During its first month of operation, the View Corporation, a construction company which specializes in home remodeling,                                    ...

Dexter company charges to expense all equipment that costs

Dexter Company charges to expense all equipment that costs $25 or less. What concept supports this policy?

Practice questionscalculate and suggest possible reasons

Practice questions: Calculate and suggest possible reasons for the materials usage variance from the following data: • Standard price per tonne is £50 • Standard usage is 1.000 tonnes • Actual price per tonne is £50 • Ac ...

Bull what does it mean to create a culture of honesty

• What does it mean to create a "Culture of Honesty, Openness, and Assistance?" Give an example from an organization with which you have been affiliated. • Codes of Conduct and Conflict of Interest Forms are often called ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate