Question 1

An entity within a group sells a non-current asset to another person of the group at a profit. The tax treatment by the individual legal entity in this case is considered from the group's perspective to represent a reduction of tax expense in the form of a

A. Current tax liability

B. Deferred tax asset

C. Deferred tax liability

D. None of the given answers are correct

Question 2

Kelvin Ltd acquired all the issued share capital of Tim Ltd for a cash consideration of $3,000,000 on 30 April 2020. At this date, all the identifiable assets and liabilities of Max Ltd were recorded at amounts equal to their fair value.

The Statement of Financial Position of Max Ltd at the acquisition date was as follows:

Assets Liabilities

Cash$100 000Accounts payable$85 000

Accounts receivable$90 000Loans$1 000 000

Equipment$2 300 000Total liabilities$1 085 000

Land$2 090 000

Total assets =$ 4 580 000Total Shareholders' equity$3 495 000

A. Purchased goodwill of $1 580 000

B. Gain on bargain purchase of $1 580 000

C. Gain of bargain purchase of $495 000

D. Purchased goodwill of $495 000

Question 3

An entity within a group sells a non-current asset to another person of the group at a loss. The tax treatment by the individual legal entity in this case is considered from the group's perspective to represent a reduction of tax expense in the form of a

A. Deferred tax asset

B. Current tax liability

C. Deferred tax liability

D. None of the given answers are correct