Comprehensive 2

Question 1

In calculating the tax effect of temporary differences, which rates are used under GAAP and IFRS?

Answer 1

GAAP uses enacted tax rate.

IFRS uses substantially enacted (possibly future) tax rate

Question 2

What is the test to see if an item is material or relevant?

Answer 2

If it will influence a user of financial statements in making investment or credit decisions in relation to the reporting entity.

Question 3

If a patent is successfully defended in litigation is the cost expensed or capitalized, and why?

Answer 3

It is capitalized because it is added to the cost of the patent. If it is a loss it is an expense because the owner may no longer have the rights to the patent.