Kiwi Ltd. commences operations on 1 January 2018 and presents its first Statement of Comprehensive Income and first Statement of Financial Position on 31 December 2018. The statements are prepared before considering taxation. The following information is available:

Statement of Profit or Loss for the year ended 31 December, 2018:

	HK$	HK$
Gross profit		600,000
Expenses:
Administration expenses	100,000
Salaries expenses	55,000
Employee benefit expense	10,000
Warranty expense	20,000
Depreciation expense plant	75,000
Insurance expense	10,000
total		270,000
Profit before tax		330,000

Assets and liabilities as disclosed in statement of financial position as at 31 December, 2018:

Assets:	HK$	HK$
Cash		30,000
Inventory		80,000
Accounts receivable		90,000
Prepaid insurance		4,000
Plant cost	300,000
Less: Accumulated depreciation	75,000	225,000
Total assets		429,000
Liabilities:
Accounts payable		50,000
Provision for warranty expenses		15,000
Loan payable		154,000
Provision for employee benefits		10,000
Total liabilities		229,000
Net assets		200,000

Other information:

1. All administration and salaries expenses incurred have been paid as at year end.
2. None of the employee benefits expense has actually been paid. It is not deductible for tax purpose until it is actually paid.
3. Warranty expenses were accrued and, at year end, actual payments of $5,000 were made (leaving an accrued balance of $15,000). Deductions for tax purpose are available only when the amounts are paid, and not as they are accrued.
4. Insurance was initially prepaid to the amount of $14,000. At year end, the unused component of the prepaid insurance amounted to $4,000. Actual amounts paid are allowed as a tax deduction.
5. Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
6. The plant is depreciated over four years for accounting purposes, but over three years for taxation purpose.
7. After adjusting for differences between tax rules and accounting rules, it is determined that the taxable income of Kiwi Ltd. is $326,000.
8. The tax rate is 20% for 2018. There were no beginning deferred tax liabilities or assets.

Required:

1. Calculate the amount of each of Kiwis temporary differences, if any, at 31 December 2018, and state whether it is deductible or taxable.

What is the balance of the deferred tax liability and deferred tax assets, if any, as at 31 December 2018? Use the following format to show your workings. [8 marks]

Prepare journal entries to record current tax and deferred tax for the year ended 31 December 2018. [3 marks]

Discuss the underling accounting concept for the accounting for deferred tax. [4 marks]

For the year ended 31 March 2018, 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 year ended 31 March 2018, the management estimated the taxable profits for the forthcoming years as follows:

2019 $50,000

2020 $40,000

2021 and beyond No estimation is available

The announced income tax rates for 2017, 2018 and thereafter was 20%.

At the end of 31 March 2019, the actual taxable profit reported in 2019 was $40,000.

At the same time, the management of the company revised their estimation about the future taxable profits as follows:

2020 $60,000

2021 $10,000

2022 and beyond No estimation is available

As at 31 March 2019, the tax authority revised the tax rate to 17% for 2020 and thereafter.

Required:

Prepare the journal entries for the adjustments of the deferred tax asset for the year of 2018 and 2019. Show your workings. [10 marks]