Question19 On 1 January 20X5, Aria Ltd acquired 100% shares of Summit Ltd for $110,000. As part of the acquisition, Aria Ltd assessed Summit Ltd’s assets and identified that a parcel of land, previously recorded at a carrying amount of $60,000, had a fair value of $80,000 at the acquisition date. Aria Ltd applies a company tax rate of 30%.Which of the following correctly reflects the required consolidation adjustment to recognise the deferred tax effect of the land revaluation? DR Deferred tax asset $6 000 CR Income Tax Expenses $6 000 CR Deferred tax liability $6 000 DR Deferred tax liability $6 000 CR Deferred tax asset $6 000 ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

Step 1: Restate the question and the options to ensure clarity. On 1 January 20X5, Aria Ltd acquired Summit Ltd with 100% ownership. A land asset had its carrying amount (CA) of 60,000 but fair value (FV) of 80,000 at the acquisition date. The tax rate is 30%. The task is to determine the consolidation adjustment to recognise the deferred tax effect of the land revaluation. The options given are:
- DR Deferred tax asset $6 000
- CR Income Tax Expenses $6 000
- CR Deferred tax liability $6 000
- DR Deferred tax liability $6 000
- CR Deferred tax asset $6 000

Step 2: Understand the accounting and tax treatment of a land revaluation in consolidation. When an asset’s fair value exceeds its carrying amount on acquisition, a revaluation surplus is created in equity (OCI in some frameworks) or within the consolidation process as part of fair-value adjustments. For tax purposes, the base cost typically remains the tax base; the excess of FV over tax base creates a temporary difference that is generally taxable, leading to a deferred tax liability (DTL). The amount of the temporary difference here is FV 80,000 − CA 60,000 = 20,000. Deferred tax at 30% is 0.30 × 20,000 = 6,000. Thus, the consolidation entry should recognise a DTL of 6,000.

Step 3: Evaluate each option in light of the above reasoning.
- Option 1: DR Deferred tax asset $6 000. A DTA would be used if there were deductible temporary differences or tax losses that can be utilized in the future. However, the land revaluation creates a taxable temporary difference (not a deductible one) because it increases taxable amounts in future periods or increases tax payable. Therefore, debiting a DTA is incorrect here.
- Option 2: CR Income Tax Expenses $6 000. This would shift tax expense directly and reduce tax expense, which is not the nature of a deferred tax adjustment on consolidation for a revaluation. The standard practice is to recognise a DTL (credit to DTL) and correspondingly adjust the income tax expense, not to credit current tax expense directly in this step. Also the option as stated does not show an offsetting entry for the DTL itself, making it incomplete as an adjustment entry.
- Option 3: CR Deferred tax liability $6 000. This aligns with recognising a taxable temporary difference arising from the revaluation of the land, computed as 20,000 × 30% = 6,000. A credit to DTL increases liabilities and correctly reflects the future tax payable due to the revaluation. In consolidation, this is the standard DTL recognition.
- Option 4: DR Deferred tax liability $6 000. Debiting the DTL would reduce the liability, which is incorrect because a revaluation that creates a taxable temporary difference should increase, not decrease, the DTL.
- Option 5: CR Deferred tax asset $6 000. This would create a DTA rather than a DTL, which is inappropriate given the taxable nature of the revaluation difference identified here.

Step 4: Synthesize the reasoning. The land’s FV exceeds its CA by 20,000, creating a taxable temporary difference for tax purposes. Applying the 30% tax rate yields 6,000 of deferred tax liability. The appropriate consolidation adjustment is to recognise this DTL, i.e., a credit of 6,000 to Deferred tax liability. The other options either propose a deferred tax asset where a liability is appropriate, or propose entries that would not correctly reflect the tax effect (e.g., debiting the DTL or affecting current tax expense directly).

Step 5: Conclusion (reiterating the correct reasoning for the chosen option). The correct approach is to recognise a deferred tax liability of 6,000 arising from the land revaluation, which corresponds to option 3: CR Deferred tax liability $6 000.

查看解析

登录即可查看完整答案

类似问题

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单