Raman Limited had investments in securities on its statement of financial position for the first time at the end of its fiscal year ending December 31, 2014. Raman reports under IFRS and its investments in securities are to be accounted for at fair value through net income. During 2014, realized losses and gains on the trading of shares and bonds resulted in investment income, which is fully taxable in the year. Raman also accrued unrealized gains at December 31, 2014, which are not taxable until the investment securities are sold. The portfolio of trading securities had an original cost of $314,450 and a fair value on December 31, 2014, of $318,200. The entry recorded by Raman on December 31, 2014, was as follows:
FV-NI Investments...............................3,750
Investment Income or Loss.....................................3,750
Income before income tax for Raman was $302,000 for the year ended December 31, 2014. There are no other permanent or reversing differences in arriving at the taxable income for Raman Limited for the fiscal year ending December 31, 2014. The enacted tax rate for 2014 and future years is 30%.
Instructions
(a) Explain the tax treatment that should be given to the unrealized gain that Raman Limited reported on its income statement.
(b) Calculate the deferred tax balance at December 31, 2014.
(c) Calculate the current income tax for the year ending December 31, 2014.
(d) Prepare the journal entries to record income taxes for 2014.
(e) Prepare the income statement for 2014, beginning with the line "Income before income tax."
(f) Provide the statement of financial position presentation for any resulting income tax statement of financial position accounts at December 31, 2014. Be clear on the classification you have chosen and explain your choice.
(g) Repeat part (f) assuming Raman follows the ASPE future/deferred income taxes method and has chosen the fair value through net income model to account for its securities investments.