Use the Following Information to Answer Questions
an Extract

question 13

Multiple Choice

Use the following information to answer questions
An extract of a company's draft statement of financial position at 30 June 2012 discloses the following:
$\begin{array} { l r r } \text { Plant (at cost) } & \$ 500,000 & \\\text { Less Accumulated Depreciation } & \underline { 300,000 } & \$ 200,000\end{array}$

On 30 June 2013 the company assessed the fair value of the plant to be $350 000. At 30 June 2014, the carrying amount of the Plant was $250 000.
The tax rate is 30%. Depreciation rates are 10% p.a. (accounting) and 12.5% p.a. (tax) using the straight-line method.
-The journal entries to adjust for the tax effect of the revaluation at 30 June 2013 is:

• A)\(\begin{array} { c l l l }
• \text { Income tax expense - OCI } & \mathrm { Dr } & 45,000 & \\
• \text { Deferred tax liability } & \mathrm { Cr } & & 45,000
• \end{array}\)
• B)\(\begin{array} { l l l l }
• \text { Asset revaluation surplus } & \mathrm { Dr } & 45,000 & \\
• \text { Income tax expense - OCI } & \mathrm { Cr } & 45,000
• \end{array}\)
• C)\(\begin{array} { c l l l }
• \text { Income tax expense } - \text { OCI } & \mathrm { Dr } & 45,000 & \\
• \text { Asset revaluation surplus } & \mathrm { Cr } & 45,000
• \end{array}\)
• D)\(\begin{array} { l l r r }
• \text { Income tax expense - OCI } & \mathrm { Dr } & 45,000 & \\
• \text { Deferred tax liability } & \mathrm { Cr } & 45,000 \\
• & & & \\
• \text { Gain on revaluation - OCI } & \mathrm { Dr } & 150,000 & \\
• \text { Income tax expense - OCI } & \mathrm { Cr } & 45,000 \\
• \text { Asset revaluation surplus } & \mathrm { Cr } & 105,000
• \end{array}\)

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Definitions:

Foreign Currency

The currency of another country, which is required for foreign trade and investment.

Hedge

An investment or action taken to reduce the risk of adverse price movements in an asset.

Exchange Rate Exposure

The potential for a company's profitability, net cash flow, and market value to change because of a change in exchange rates.

Exchange Rate Quotations

The price of one currency in terms of another currency, commonly used in international trade and investment transactions.