As at year ended 31 March 2019, the total carrying value of property, plant and equipment on the statement of financial position of Candy Limited was $720,000. The current assets as at year ended 2019 included interest receivable of $10,000. The related interest revenue would be taxed on a cash basis.

Property, plant and equipment included furniture and computer equipment. Furniture was acquired on 1 April 2016 at a cost of $800,000. The company purchased the computer equipment during the year 2019 for $600,000.

It is Candy Limiteds accounting policy to measure its property, plant and equipment at cost less accumulated depreciation. Accounting depreciation is provided on a straight-line basis over the useful life of the asset:

Furniture 5 years Computer Equipment 3 years

Full year depreciation will be provided for in the year of purchase and nil residual value is assumed.

As at 31 March 2018, the balances of deferred tax accounts in the statement of financial position were:

Deferred tax asset $16,000 (coming from tax losses carried forward)

Deferred tax liability $96,000

As at 31 March 2019, tax depreciation of $800,000 had been allowed for furniture. The tax authority allows full deduction on the cost of any computer equipment in the year of purchase. For the year ended 31 March 2019, a tax loss of $40,000 was computed. All tax losses will be allowed to set off the future profits for tax purpose. As at 31 March 2019, the management estimated the taxable profits for the forthcoming years as follows:

2020 $50,000 2021 $40,000 2022 and beyond No estimation is available

The announced income tax rates for 2018 and thereafter was 20%.

Part A:

Sea Ltd. commenced its business in 2019. The company incurred a tax loss of $150,000 for the year ended 31 December 2019. It is expected that the company will not incur losses again and will be able to generate future taxable profits of $160,000. The tax rate for 2019 and thereafter is 30%.

Required:

(a) Provide the journal entries to record deferred tax regarding the tax loss in year 2019.

(b) Assume the actual taxable profit for the year ended 31 December 2020 is $40,000 and the management of the company based on new information estimates the future taxable profits as $90,000 on 31 December 2021. Prepare the relevant journal entries for the year 2020.

Show all workings. Narratives are not required.