QUESTION FOUR: ACCOUNTING FOR INCOME TAX

Oscar Limited applies the principles of taxeffect accounting as per NZ IAS 12 in accounting for company income tax. Oscar Ltd calculates depreciation expense on its plant using the straightline method but applies an accelerated method for tax purposes. Tax depreciation in the current year is then larger than the related accounting expense. Oscar Limited has also recognised rent received in advance from buildings that it owns. These revenues are included in the current years taxable profit but shown in the financial statements as a liability.

Required:

a) Determine how Oscar Limited should account for the above differences for accounting and tax treatment.

b) Briefly explain the circumstances under which Oscar Limited should recognise deferred tax liabilities and deferred tax assets in the statement of financial position.