Catherine Duffy: Hi, I’m Catherine Duffy, and we’re about to get started on a video
series.
It’s going to take you temporary difference income tax accounting method, under IFRS,
applying the Canadian tax laws in the example.
So, the first thing we’re going to get looking at, are some base facts to start an example
with.
So there are the facts of the income tax situation that I’m going to use to illustrate the
tax accounting.
So, just to remind everybody, the method of tax accounting that we’re using here is
under, IFRS, called the temporary difference method, and it sometimes referred to as differed
tax accounting method.
So, that’s what we’ll be applying in this example.
The tax rates that I’ve made up for this situation were for the base here form last
year to 2015 as well as the current year which is the year we’re going to be doing the
tax accounting for, or 20%.
And then from every year from 2017, and beyond, we’ll assume a tax rate of 15%, and that’s
known right now in the year 2016.
Other facts that are relevant to the tax accounting for this year, are the property plant and
equipment assets, which I’ll use the abbreviation, PPE sometimes.
Given at the end of last year, December 31st, 2015, they had a netbook value of $40,000.
So, a gross value of $55,000, accumulation, depreciation of 15%, but, the only thing that’s
relevant here for the tax accounting is the netbook value of 40,000, and we’ll assume
that they’ll depreciate $2,000, a year, straight-line basis.
So, in 2016, it will be another $2,000 of depreciation expense booked.
The depreciated capital cost allowance in the short form you see for tax purposes December
31st, 2015, the UCC was 25,000, we’ll assume, a made up tax class that has a CCA or capital
cost allowance rate of 12%, for this particular class of assets.
And then, the other relevant fact for this tax accounting situation is that, at the end
of last year, December 2015, there was a warranty liability that had been accrued, but not spent
yet, of $80,000.
These tax facts are all based on the Canadian tax act as it stands right now in 2016.
So, more facts that are relevant to the 2016 fiscal year that we’re doing the tax accounting
entries for.
You need to have a starting point, and, the best starting point is usually the accounting
net income, which is $80,000 before tax, journal entries booked.
Other fact that are going to be relevant to this tax accounting situation that have already
been accounted for, in the financial statements in the general ledger for 2016, include the
following items, we’ve got: depreciation expense, that was booked, of $2,000, we’ve
got dividend income from Canadian corporations of $8,000 that’s been recorded.
There were some fines paid for some type of item that was fined this year.
$3,000, that’s been expensed, in the $80,000 or net income.
There were some repairs done to some products that we sold in prior years, and we’ve accrued
a warranty on that, as you saw on the original facts, that there was a warranty liability.
And, the repairs that were done cost us $8,500 this year and would have been just charged
against the warranty, and not the need to be expensed.
There’s a restructuring liability that was accrued this year, that was expensed, of $10,000,
because we planned to shut down a location next year.
None of that is supposed to be expensed yet, so there is still a $10,000 liability in our
balance sheet.
There is rental income that has been accrued, and is sitting in receivables still, of $6,000.
It was earned this year, but has not yet been collected.
And finally, there has been some meals and entertained expenses of $7,500 were booked
for this year, and, we’ll come to that, but, only 15% of those meals and entertainment
expenses are deductible for tax purposes.
Okay, those are the facts that we’re going to use for this example, so thanks for watching,
and, whenever you’re ready, move on to the next video, which will take you through the
step one calculation of current income tax expense.