QUESTION 17

Mikes Mini-Motorcycles (MMM) is a business that produces motorcycles for small children. They have garnered a reputation for being extremely dangerous, but extremely fun. The business has been very successful in Alberta and has grown quickly. It is now listed on the Calgary Stock Exchange and is reporting under IFRS. The company has many employees and investments, and correspondingly has a complex tax situation. It is now shortly after the end of the 2020 year, and you are approached by Mike, the CEO and Founder of MMM. Mike says:

• My brother, an accountant, tells me that these differences sometimes create deferred tax assets or liabilities, can you tell me which is which and why? [ANALYZE]
• Business has been very good, but big government is causing us troubles with our taxes. There are a number of transactions we have that have created something called permanent and temporary differences and I need to know which of the transactions on this list (Appendix I) are which. [CONCLUDE]
• I dont really understand what a Temporary (Reversing) difference is, can you explain? [ADVISE]

ASSESS the Situation: maximum 2 sentences

ANALYZE Major Issue(s): maximum 6 sentences

CONLUDE: maximum 2 sentences; Consider utilizing the chart template below to organize your response

Item	Reversing or Permanent Difference	Deferred tax A/L/No deferred tax
1
2
3
4
5
6
7
8
9
10

& ADVISE: maximum 2 sentences

Appendix I

1. The excess amount of a charge to the accounting records (allowance method) over a charge to the tax return for the writedown of inventory due to obsolescence.
2. The excess amount of accrued pension expense over the amount paid.
3. The receipt of dividends from a taxable Canadian corporation that are treated as income for accounting purposes but are not subject to tax.
4. Expenses incurred in obtaining tax-exempt income.
5. A trademark that is acquired directly from the government and is capitalized and amortized over subsequent periods for accounting purposes and expensed for tax purposes.
6. A prepaid advertising expense that is deferred for accounting purposes and deducted as an expense for tax purposes.
7. Premiums paid on life insurance of officers (where the corporation is the beneficiary).
8. A penalty paid for filing a late tax return.
9. Proceeds of life insurance policies on lives of officers involved in mini-motorcycle accidents
10. Restructuring costs that are recognized as an unusual item on the income statement and are not deductible until actual costs are incurred.