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    Workshop 6 SOL Additional Question

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    timlee38
    The accounting profit before tax for She Said Ltd for the year ended 30 June 2017 was $24,000. The current tax worksheet calculated taxable income as $38,140 resulting in a current tax liability of $11,442. The deferred tax worksheet calculated a deferred tax liability of $9,084 and a deferred tax asset of $4,470 as of 30 June 2017. The net deferred tax expense was $2,220. If the company had previously recognized a tax loss carryforward asset of $18,400, the current tax liability would be $7,530 with the offset against the deferred tax asset.

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    Workshop 6 SOL Additional Question

    Uploaded by

    timlee38
    1K views5 pages
    The accounting profit before tax for She Said Ltd for the year ended 30 June 2017 was $24,000. The current tax worksheet calculated taxable income as $38,140 resulting in a current tax liability of $11,442. The deferred tax worksheet calculated a deferred tax liability of $9,084 and a deferred tax asset of $4,470 as of 30 June 2017. The net deferred tax expense was $2,220. If the company had previously recognized a tax loss carryforward asset of $18,400, the current tax liability would be $7,530 with the offset against the deferred tax asset.

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    The accounting profit before tax for She Said Ltd for the year ended 30 June 2017 was $24,000. The current tax worksheet calculated taxable income as $38,140 resulting in a current tax liability of $11,442. The deferred tax worksheet calculated a deferred tax liability of $9,084 and a deferred tax asset of $4,470 as of 30 June 2017. The net deferred tax expense was $2,220. If the company had previously recognized a tax loss carryforward asset of $18,400, the current tax liability would be $7,530 with the offset against the deferred tax asset.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    1K views5 pages

    Workshop 6 SOL Additional Question

    Uploaded by

    timlee38
    The accounting profit before tax for She Said Ltd for the year ended 30 June 2017 was $24,000. The current tax worksheet calculated taxable income as $38,140 resulting in a current tax liability of $11,442. The deferred tax worksheet calculated a deferred tax liability of $9,084 and a deferred tax asset of $4,470 as of 30 June 2017. The net deferred tax expense was $2,220. If the company had previously recognized a tax loss carryforward asset of $18,400, the current tax liability would be $7,530 with the offset against the deferred tax asset.

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    Download as pdf or txt
    of 5

    Question 6.

    12
    tax entries

    Current and deferred tax worksheets, amended

    assessment

    and

    The accounting profit before tax of She Said Ltd for the year ended 30 June 2017 was $24 000
    and included the income and expense items shown below.
    Government grant (exempt from tax)
    Proceeds on sale of plant
    Carrying amount of plant sold
    Entertainment expense
    Bad debts expense
    Depreciation expense plant
    Insurance expense
    Annual leave expense

    5 360
    33 000
    30 000
    12 100
    5 200
    24 000
    11 900
    15 400

    The statements of financial position of She Said Ltd as at 30 June 2017 and 2016 included the
    following assets and liabilities:
    SHE SAID LTD
    Statement of Financial Position (Extract)
    as at 30 June
    2017
    Accounts receivable
    $
    156 000
    Allowance for doubtful debts
    (6 800 )
    Prepaid insurance
    3 400
    Plant at cost
    240 000
    Accumulated depreciation plant
    (134 400 )
    Deferred tax asset
    ?
    Provision for annual leave
    14 100
    Deferred tax liability
    ?

    2016
    147 500
    (5 200 )
    5 600
    290 000
    (130 400 )
    4 470
    9 700
    9 504

    Additional information
    (a) In March 2017, the company received an amended assessment from the ATO for the year
    ended 30 June 2016 indicating that an amount of $4500 claimed as a deduction for legal
    expenses had been disallowed. The company has not yet adjusted its accounts to reflect the
    amendment.
    (b) For tax purposes the carrying amount of plant sold was $26 000. There were no other disposals
    or acquisitions of plant during the year.
    (c) The tax deduction for plant depreciation was $28 800. Accumulated depreciation at 30 June
    2016 for taxation purposes was $156 480.
    (d) The tax rate is 30%.
    Required
    A. Prepare the journal entry necessary to record the amended assessment of the company for 30
    June 2016.
    B. Prepare the current tax worksheet for the year ended 30 June 2017and the entries to record
    the current tax.
    C. Explain your treatment of annual leave expense in the current tax worksheet.
    D. Prepare the deferred tax worksheet as at 30 June 2017 and the entries to record the deferred
    tax.
    E. What would be the journal entry for current tax for the year ended 30 June 2017 if company
    had previously recognised a deferred tax asset for carried forward tax losses of $18 400.

    Part A
    Journal entry to record 2016 amendment assessment
    March 2017
    Income tax expense
    Current tax liability

    Dr
    Cr

    1 350
    1 350

    Note: the disallowed expense item increases the tax due for the year to 30 June 2016 but it is
    brought to account in the current period
    Part B
    Current Tax Worksheet
    for the year ended 30 June 2017

    Profit before income tax


    Add:
    Entertainment expense (non-deductible)
    Carrying amount of plant sold (accounts)
    Depreciation expense plant
    Bad debts expense
    Insurance expense
    Annual leave expense

    $24 000
    $12 100
    30 000
    24 000
    5 200
    11 900
    15 400

    Deduct:
    Government grant (exempt)
    Carrying amount of plant sold (tax)
    Depreciation taxation
    Bad debts written off
    Insurance paid
    Annual leave paid
    Taxable income
    Current tax liability @ 30%
    Journal entry
    Income tax expense
    Current tax liability

    5 360
    26 000
    28 800
    3 600
    9 700
    11 000

    Dr
    Cr

    98 600
    122 600

    (84 460)
    38 140
    $11 442

    11 442
    11 442

    Explanations for current tax worksheet


    Adjusting for carrying amount sold
    Adjusting for the carrying amount of plant sold in the current tax worksheet has the same effect
    as adjusting for any gain/loss on sale. The net adjustment in the worksheet is add $4 000 (add
    $30 000 deduct $26 000)
    Gain on sale for accounting is $33 000 $30 000 = $3 000
    Gain on sale for tax is $33 000 - $26 000 = $7000
    Add $4 000

    Allowance for Doubtful Debts


    $
    Ending balance
    6 800
    Beginning balance
    Expense
    Debts written off
    3 600
    10 400

    Leave paid
    Ending balance

    Beginning balance
    Insurance paid

    Provision for Annual Leave


    $
    Beginning balance
    11 000
    14 100
    Expense
    25 100

    Prepaid Insurance
    $
    5 600
    9 700
    15 300

    Ending balance
    Expense

    $
    5 200
    5 200
    10 400

    $
    9 700
    15 400
    25 100

    $
    3 400
    11 900
    15 300

    Part C
    Annual leave in the current tax worksheet
    Income tax laws and accounting standards regard annual leave as relevant to the calculation of
    taxable income and profit before tax however, tax laws use the cash basis and accounting
    standards use the accrual basis.
    In the current year, the company recorded an expense of $15 400 relating to leave that accrues
    in the period. But the tax deduction allowed is the amount paid of $11 000.
    Accordingly, the leave expense of $15 400 is added back to accounting profit to remove it from
    the calculation of taxable income. And then leave paid is deducted from accounting profit to
    include it into the calculation of taxable income.
    The net effect of the two adjustments equals the increase in the provision for the year and
    results in the taxable income being $4 400 more than the accounting profit for the year ended
    30 June 2017.
    The company has a higher taxable income and pays more tax in the current period but it will
    have lower taxable income and pay less tax in a future period when leave paid is greater than
    leave expense.

    Part D
    Deferred Tax Worksheet
    as at 30 June 2017
    Carrying
    Deductible
    Tax Base
    Amount
    Amount
    $
    Assets
    A/cs receivable
    Prepaid insurance
    Plant
    Liabilities
    Provision
    for annual leave

    Taxable
    Temp
    Diffs
    $

    Deductible
    Temp
    Diffs
    $

    149 200
    3 400
    105 600

    0
    0
    78 720

    156 000
    0
    78 720

    [2]
    [1]
    [1]

    0
    3 400
    26 880

    6 800
    0
    0

    14 100

    [1]

    14 100

    30 280

    20 900

    Total Temporary
    Differences
    Deferred
    tax liability
    (30%)
    Deferred tax
    asset (30%)
    Begin Balances
    Increase/
    (Decrease)

    9 084

    6 270
    9 504
    (420)

    4 470
    1 800

    Assets that generate future taxable economic benefits: [1] Tax Base = Future deductible amount
    Assets that do not generate future taxable economic benefits: [2] Tax Base = Carrying amount
    Liabilities except unearned revenue: [1] Tax Base = Carrying amount less Future deductible amount
    Liability of unearned revenue: [2] Tax Base = Carrying amount Untaxed future revenue

    Deferred Tax Liability


    Deferred Tax Asset
    Income Tax Expense

    Dr
    Dr
    Cr

    420
    1 800
    2 220

    Explanations for deferred tax worksheet


    Plant for tax purposes
    Cost
    240 000
    Accumulated depreciation
    (156 480 + 28 800 **24 000)
    161 280
    Tax base
    78 720
    **$24 000 = $50 000 (cost of plant sold) - $26 000 (tax carrying amount of plant sold)
    Allowance for doubtful debts
    In the current year, the allowance for doubtful debts increases by $1 600 resulting in the deferred
    tax asset increasing by $480.

    Provision for annual leave


    In the current year, the provision for annual leave increases by $4 400 resulting in the deferred tax
    asset increasing by $1 320.
    Prepaid insurance
    In the current year, prepaid insurance decreases by $2 200 resulting in the deferred tax liability
    decreasing by $660.
    Plant
    Plant is being depreciated faster for taxation purposes than for accounting purposes. The carrying
    amount and tax base of plant at 30 June 2017 and 30 June 2016 is as follows:

    Plant (net) 2017


    Plant (net) 2016
    Increase in Difference

    Accounting
    105 600
    159 600

    Tax
    78 720
    133 520

    Difference
    26 880
    26 080
    800

    In the current year, the difference between the carrying amount and tax base of plant increases by
    $800 resulting in the deferred tax liability increasing by $240.
    Part E
    Tax Losses Carried Forward
    Deferred tax asset for tax losses at1 July 2016 = 18 400 x 30% = $5 520
    Tax losses must be offset against exempt income first before reducing the taxable income of a
    period. Accordingly, the tax losses that are available to offset the taxable income of $38 140 are
    $13 040 ($18 400 $5 360) resulting in a final taxable income of $25 100.
    Current Tax Worksheet (Extract)
    for the year ended 30 June 2017

    Taxable income
    Add back exempt income

    38 140
    5 360
    43 500
    (18 400)
    25 100
    $7 530

    Less recoupment of tax loss


    Taxable income after recoupment of tax loss
    Current tax liability @ 30%
    Journal entry:
    Income tax expense
    Deferred tax asset
    Current tax liability

    Dr
    Cr
    Cr

    13 050
    5 520
    7 530

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