Question 1 (34 marks) Galaxy Limited was incorporated in Hong Kong in January 2017 and earns its revenue by selling coconut oil. Galaxy has not accounted for deferred tax since its establishment. The following draft statements of financial position items as at 31 December 2017 and 31 December 2018 are relevant for the purpose of computing the deferred tax balance 2017 2018 Carrying amount Tax base amount Tax base Carrying 000 Property, plant and equipment 12,000 9,600 22,000 16,000 1,0001,000 $'000S'000S 000 Investments Research and development cost 4,000 4,000 2,600 1,300 360 400 400 900 1,000 600 2,000 2,000 3,000 3,000 21,360 16,40028,700 21,600 Inventory Account receivable 400 500 an Total assets Long service leave provision Accrued expenses Account payables Income tax pavables Other payables Total abilities 1,800 1,000 600 1,400 1,100 450 450 2,400 2,4002,3502,350 600 100 5,900 3,000 5,300 2,800 Galaxy Limited had confidence that it will generate sufficient taxable profits in future against which any resulting deferred tax assets could be utilized. The Inland Revenue Department does not allow Galaxy Limited to offset current tax assets against current tax liability Assume the tax rates for 2017 and 2018 were 20% Required: Discuss why Galaxy Limited wants to provide for deferred tax. Determine the deferred tax assets and liability for 2017 and 2018. Prepare journal entries to record the current tax and deferred tax a (8 marks) b (18 marks) c assets/liabilities of Galaxy Limited for the year ended 2018 (8 marks) Question 1 (34 marks) Galaxy Limited was incorporated in Hong Kong in January 2017 and earns its revenue by selling coconut oil. Galaxy has not accounted for deferred tax since its establishment. The following draft statements of financial position items as at 31 December 2017 and 31 December 2018 are relevant for the purpose of computing the deferred tax balance 2017 2018 Carrying amount Tax base amount Tax base Carrying 000 Property, plant and equipment 12,000 9,600 22,000 16,000 1,0001,000 $'000S'000S 000 Investments Research and development cost 4,000 4,000 2,600 1,300 360 400 400 900 1,000 600 2,000 2,000 3,000 3,000 21,360 16,40028,700 21,600 Inventory Account receivable 400 500 an Total assets Long service leave provision Accrued expenses Account payables Income tax pavables Other payables Total abilities 1,800 1,000 600 1,400 1,100 450 450 2,400 2,4002,3502,350 600 100 5,900 3,000 5,300 2,800 Galaxy Limited had confidence that it will generate sufficient taxable profits in future against which any resulting deferred tax assets could be utilized. The Inland Revenue Department does not allow Galaxy Limited to offset current tax assets against current tax liability Assume the tax rates for 2017 and 2018 were 20% Required: Discuss why Galaxy Limited wants to provide for deferred tax. Determine the deferred tax assets and liability for 2017 and 2018. Prepare journal entries to record the current tax and deferred tax a (8 marks) b (18 marks) c assets/liabilities of Galaxy Limited for the year ended 2018 (8 marks)