This document contains two parts. Part 1 provides information and questions regarding income taxes, including calculating income taxes payable and journal entries for deferred tax assets and liabilities. Part 2 provides information and questions regarding share-based payments, including calculating expenses for cash-settled share appreciation rights and estimating expenses for an employee share option plan. The document includes names of individuals and companies, financial amounts, tax rates, and excerpts of annual reports.
This document contains two parts. Part 1 provides information and questions regarding income taxes, including calculating income taxes payable and journal entries for deferred tax assets and liabilities. Part 2 provides information and questions regarding share-based payments, including calculating expenses for cash-settled share appreciation rights and estimating expenses for an employee share option plan. The document includes names of individuals and companies, financial amounts, tax rates, and excerpts of annual reports.
This document contains two parts. Part 1 provides information and questions regarding income taxes, including calculating income taxes payable and journal entries for deferred tax assets and liabilities. Part 2 provides information and questions regarding share-based payments, including calculating expenses for cash-settled share appreciation rights and estimating expenses for an employee share option plan. The document includes names of individuals and companies, financial amounts, tax rates, and excerpts of annual reports.
This document contains two parts. Part 1 provides information and questions regarding income taxes, including calculating income taxes payable and journal entries for deferred tax assets and liabilities. Part 2 provides information and questions regarding share-based payments, including calculating expenses for cash-settled share appreciation rights and estimating expenses for an employee share option plan. The document includes names of individuals and companies, financial amounts, tax rates, and excerpts of annual reports.
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Amsterdam Business School IAS 12 – Income Taxes – Questions IFRS 2 – Share-
based Payments – Questions
Oleksandra Kochubei 1294135 Benjamin Tetteroo 13851322
Part 1. Income Taxes
Question 1.1. Modified version of exercise 6.5 from textbook
The profit before tax of Violet Ltd. for the year ended December 31, 2022, amounted to €60,000, and included the following revenue and expense items:
Rent revenue €3,000
Government grant received (non-taxable) 1,000 Bad debts expense 6,000 Depreciation of plant 5,000 Annual leave expense 3,000 Entertainment costs (non-deductible) 1,800 Depreciation of buildings (non-deductible) 800
The statements of financial position at the end of 2022 and 2021 showed the following assets and liabilities: 2022 2021 Assets Cash 8,000 8,500 Inventory 17,000 15,500 Receivables 50,000 48,000 Allowance for doubtful accounts (5,500) (4,000) Office supplies 2,500 2,200 Plant 50,000 50,000 Accumulated depreciation – plant (26,000) (21,000) Buildings 30,000 30,000 Accumulated depreciation – buildings (14,800) (14,000) Goodwill (net) (7,000) (7,000) Deferred tax asset ? 4,050 Liabilities Accounts payable 29,000 26,000 Provision for annual leave 4,000 3,000 Rent received in advance 2,500 2,000 Deferred tax liability ? 3,150
Additional information: a)Accumulated depreciation of plant for tax purposes was 315,000 at December 31, 2021, and depreciation of plant for tax purposes for the year ended December 31, 2022, amounted to 7,500.
1 b)The tax rate is 30%.
Required
Determine the income taxes payable for the year 2022.
Accounting profit 60,000
Add: Entertainment costs (non-deductible) 1,800 Depreciation of buildings (non-deductible) 800 Depreciation of plant 5,000 Annual leave expense 3,000 Bad debts expense 6,000
16,600 Deduct:
Rent revenue 3,000
Government grant received (non-taxable) 1,000 Bad debts written off 4,500 Annual leave paid 2,000 10,500 Taxable profit 66,100 Current liability at 30% 19,830
Recognition of current liability:
Income tax expense (current) 19,830 Current tax liability 19,830
Question 1.2. Modified version of exercise 6.6 from textbook
The following are all independent situations.
a) The entity has an allowance for doubtful debts of €10,000 at the end of the current year relating to accounts receivable of €125,000. The prior year balances for these accounts were €8,500 and €97,500 respectively. During the current year, debts worth €9,250 were written off as uncollectable. b) The entity sold a vehicle at the end of the current year for €15,000. The vehicle cost €100,000 when purchased 3 years ago, and had a carrying amount of €25,000 when sold. The taxation depreciation rate for equipment of this type is 33%. c) The entity has recognised an interest receivable asset with a beginning balance of €17,000 and an ending balance of €19,500 for the current year. During the year, interest of €127,000 was received in cash.
2 d) At the end of the current year, the entity has recognised a liability of €4,000 in respect of outstanding fines for non-compliance with safety legislation. Such fines are not tax-deductible.
Required
Prepare the journal entries for deferred tax on the creation or reversal of any temporary differences (i.e. income tax expense and DTA/DTL entries). Assume a tax rate of 30%. Explanations are NOT required, but show your calculations.
A) Deferred tax asset D 450 (10,000*0.3-8,500*0.3) Income tax income C 450
B) Deferred tax liability D 7,500 (25,00*0.3) Income tax income C 7,500
C) Income tax income D 750(19,500*0.3 -17000*0.3) Deferred tax liability C 750
D) Permanent difference
Part 2. Share-based Payments
Question 2.1 Cash-settled share-based payments
On January 1, 2020, Gasly Inc. granted 500 share-appreciation rights to its employees, which the employees can settle in cash within 2 years after the vesting date when they remain in the employ of the company at that time. The share-appreciation rights vest after 3 years. The company expects that 20 percent of employees will leave before the vesting date and this expectation turns out to be true. Also, 30 percent of employees will convert their share-appreciation rights into cash at the end of year 3. The fair value of the share-appreciation rights at the end of each period is as follows:
Year Fair value Intrinsic value
2020 €4.50 2021 €6.00 2022 €7.00 €4.00
Required
3 Compute the expense the company should recognize for the fiscal year 2022.
Look up the annual report of Just Eat Takeaway for the year ended December 31, 2020 (https://www.justeattakeaway.com/annual-reports). In Note 6 to the Financial Statements, Share-based payments (on pp179-188), the company provides disclosures related to its Employee Share Options Plan (ESOP).
Required
Using the relevant information from this disclosure compute an estimate of the total expense recognized by the company in 2020 that relates to the shares and options that were granted under the ESOP in 2020.
The estimate of the total expense recognized by the company in 2020 is 4679
Notes
The 2020 annual report, being old, is to be found at the very bottom of the page. Do NOT use the 2022 annual report! Do NOT use the “Weighted average exercise price” listed in the table on p184. For the valuation of stock options use the valuation model in the Excel file provided.
