LGS Inc. is a private company. You have recently been hired as the CFO for the company and are currently finalizing the company year-end report for December 31, 2011. The company has an option to follow either IFRS or PE GAAP, and has not yet made the choice. Three situations have arisen affecting the company's reporting of income taxes.
These situations are described below (assume that tax rates are 28%).
1. Shortly after you were hired, you found that a prior period adjustment had been made in 2010, and the future income tax liability account was adjusted through retained earnings as part of this error correction. The difference between the accounting value and the tax value of the related asset is $1 million. Originally, the rate used to record the future income tax liability was 25%. In 2011, the enacted tax rate on this difference is now 28% and therefore an adjustment must be made to the financial tax liability account.
2. The company has land with a building that has been recently appraised at a fair value of $10 million. Currently, the building's carrying value is $6.5 million and its original cost was $8 million. Accumulated capital cost allowance booked to date on the building is $2.3 million. (Ignore the one-time adjustments allowed to property, plant, and equipment for first-time adopters for IFRS or PE GAAP.)
3. LGS bought some equity investments during the year that are not publicly traded for a total cost of $340,000. The company purchased these as an investment to be sold in the near future. Currently, the shares have been valued at December 31, 2010, for $510,000. There were no dividends received on this investment during the year.
Instructions For each of the situations described above, discuss the options for reporting the income tax implications under IFRS and PE GAAP.

  • CreatedAugust 23, 2015
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