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CIMAPRA19-F02-1 Exam - Topic 5 Question 94 Discussion

The tax benefit on a company's asset is 180,000 and the useful life on that asset is five years. The company creates a deferred tax provision to spread this benefit over the asset's useful life.What entry is needed to reduce this deferred tax provision in the company's year two accounts?
B) CR Deferred tax liability (SOFP) 36,000
A) DR Deferred tax liability (SOFP) 36,000
C) DR Corporation tax (income statement) 36,000
D) CR Corporation tax (income statement) 36,000
E) DR Deferred tax liability (SOFP) 144,000
F) CR Deferred tax liability (SOFP) 144,000
G) DR Corporation tax (income statement) 144,000
H) CR Corporation tax (income statement) 144,000

CIMAPRA19-F02-1 Exam - Topic 5 Question 94 Discussion

Actual exam question for CIMA's CIMAPRA19-F02-1 exam
Question #: 94
Topic #: 5
[All CIMAPRA19-F02-1 Questions]

The tax benefit on a company's asset is 180,000 and the useful life on that asset is five years. The company creates a deferred tax provision to spread this benefit over the asset's useful life.

What entry is needed to reduce this deferred tax provision in the company's year two accounts?

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Suggested Answer: B

by Lizbeth at Aug 02, 2024, 01:45 AM

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Paris
9 months ago
So, we just reduce the liability each year? Interesting!
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Krissy
10 months ago
Definitely not option E, that's way too high!
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Eleni
10 months ago
Wait, is it really that straightforward?
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Quiana
10 months ago
I think it's option A! Sounds right to me.
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Hayley
10 months ago
The deferred tax benefit is 36,000 per year.
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Theodora
10 months ago
I believe we should be debiting the deferred tax liability since we're reducing it, but I can't recall if it's 36,000 or 144,000.
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Brittney
11 months ago
I’m a bit confused about whether we should be looking at the income statement or the statement of financial position for this entry.
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Karrie
11 months ago
I remember practicing a similar question where we had to adjust deferred tax provisions. I think the correct entry is to credit the deferred tax liability.
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Luisa
11 months ago
I think we need to reduce the deferred tax liability by the annual amount, which would be 36,000 for year two, but I'm not sure if it's a debit or credit.
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Laine
11 months ago
I think the key here is to remember that the deferred tax provision is being spread over the asset's useful life, which is 5 years. So in year two, we need to reduce the deferred tax liability by one-fifth of the total, which is 36,000. Option B looks like the right answer to me.
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Hobert
11 months ago
Wait, I'm confused. If the tax benefit is 180,000 over 5 years, shouldn't we be reducing the deferred tax liability by 144,000 in year two (180,000 - 36,000)? I'm not sure about this one.
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Earlean
11 months ago
Okay, I've got this. The tax benefit is 180,000 over 5 years, so in year two we need to reduce the deferred tax liability by 36,000 (180,000 / 5). The entry would be a credit to the deferred tax liability account.
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Jamal
11 months ago
Hmm, I'm a bit unsure about this one. I know we need to reduce the deferred tax provision, but I'm not sure if we debit or credit the deferred tax liability account. I'll have to think this through carefully.
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Harrison
11 months ago
This looks like a straightforward deferred tax question. I think the key is to remember that the deferred tax provision is spread over the asset's useful life, so in year two we need to reduce the provision by one-fifth of the total.
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Malissa
11 months ago
Ah, I think I've got it. The underlined text is correct - the user should go to office.com to access OneDrive for Business directly, rather than trying to sign in through the main Office 365 URL. I'll select "No change is needed".
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Lorriane
1 year ago
Hmm, I'm leaning towards F. Reducing the deferred tax liability by the full 144,000 seems like the logical choice here.
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Juliann
1 year ago
User3: Yeah, F is the right answer. It's important to adjust the deferred tax provision accordingly.
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Lilli
1 year ago
User2: I agree, reducing it by 144,000 seems like the logical choice.
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Ty
1 year ago
User1: I think F is the correct option. It makes sense to reduce the deferred tax liability by the full amount.
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Ahmed
1 year ago
Haha, this is a tricky one! I bet the answer is something like 'All of the above, plus a dance routine and a plate of nachos.'
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Delisa
1 year ago
C) DR Corporation tax (income statement) 36,000
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Yoko
1 year ago
B) CR Deferred tax liability (SOFP) 36,000
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Royce
1 year ago
A) DR Deferred tax liability (SOFP) 36,000
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Judy
1 year ago
I'm not sure, but I think it makes sense to credit the deferred tax liability to reduce it in the year two accounts.
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Phung
1 year ago
I'm going with C. We're reducing the corporation tax expense in the income statement, not the deferred tax liability.
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Dorsey
1 year ago
User 2: No, I believe it should be B) CR Deferred tax liability (SOFP) 36,000
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Dominga
1 year ago
User 1: I think the correct answer is C) DR Corporation tax (income statement) 36,000
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Alease
1 year ago
I agree with Beatriz, because the company needs to reduce the deferred tax provision by recognizing the tax liability on the balance sheet.
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Hana
1 year ago
Option B looks right to me. We need to reduce the deferred tax liability account, so a credit entry is needed.
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Domitila
1 year ago
The entry will help accurately reflect the tax benefit over the useful life of the asset.
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Arlene
1 year ago
Reducing the deferred tax provision will have an impact on the company's financial statements.
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Candida
1 year ago
It makes sense to credit the deferred tax liability account in this situation.
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Lorriane
1 year ago
I agree, option B is the correct entry to reduce the deferred tax provision.
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Beatriz
1 year ago
I think the answer is A) DR Deferred tax liability (SOFP) 36,000.
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