Question

Indicate if the following statements if are true or false and justify your answer:

1. All differences between accounting income and tax income should always allocate between periods.

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2. All leases transactions should be expenses when are incurred.

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3. When company consolidated foreign subsidiary, we never take in consideration the subsidiary currency.

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4. We can’t determine how much information should be disclosed to help user to take decisions, but there are general approaches to disclose.

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5. Convertible bonds can measure and recognized as equity.

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6. We should eliminate the variance between what accounting provides and what shareholders expect.

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Answer 1

1. All differences between accounting income and tax income should always allocate between periods.

       False Accounting income is the net profit before tax for a period, as reported in the profit and loss statement.      Whereas taxable income is the income on which income tax is payable, computed by applying provisions of the      Income Tax Act.Mainly there are two types of differences i.e. Timing difference and Permanent Difference.Timing Difference are those differences between accounting and taxable income which can be reversed in one or more subsequent periods. On the other hand, permanent differences are those differences between accounting income and taxable income which cannot be reversed in any of the subsequemt period like some expenses are allowed in accounts which are disallowed in Tax.

   2. All leases transactions should be expenses when are incurred.

False There are two types of lease i.e operating lease and financial lease. In Operating lease, the lease transactions are expenses for lessee whereas in finance lease the same is capital asset on which depreciation is to be claimed.

3. When company consolidated foreign subsidiary, we never take in consideration the subsidiary currency.

True.At the time of consolidation of financial statemets of parent company with its subsidiary, the parent company's functional currency is taken into consideration regardless of the fact that what is subsidiary company is currency. The financial statement of subsidiary company are translated into functional currency for the purpose of consolidation.

4. Convertible bonds can measure and recognized as equity.

False Convertible bonds are generally accounted in two parts one is the debt component,as it gives fixed income i.e. interest to the holders, and the other is the equity component as it can be converted in common stock. There are some situations where in it would classify as equity instrument but if the other members of the group assumed any obligation or provided any guarantee to the holder of the instrument, then such additional terms and conditions would need to be considered for the determination of such instrument as equity or liability instrument.

5. We should eliminate the variance between what accounting provides and what shareholders expect

True Accounting provides the information regarding net income and financial position of an entity but this is not just enough for shareholders. They also want to know whether their value in being increased or not, whether there is any threat to companies existence, whether they will get dividend each year, whether the market capitalization is strong enough. so we should prepare reports on all the aspects that shareholders expect from us.