Question
Question 2 Celery Ltd reported the following for 2016 and 2017 (RM in millions): 2016 2017 (RM in millions) (RM in millions) Revenue 1800 2100
Question 2
Celery Ltd reported the following for 2016 and 2017 (RM in millions):
2016 2017
(RM in millions) (RM in millions)
Revenue 1800 2100
Expenses 1600 1800
Profit before tax (Income Statement) 200 300
Tax rate:25%
(a)Expenses each year includes $50 million from a two year casualty insurance policy purchased in 2016 for $100 million.
(b)Expenses include $5 million non-deductible insurance premium each year for life insurance on key executives.
(c)Celery Ltd sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2016 and 2017 were $65 million and $80 million respectively. Subscriptions included in 2016 and 2017 financial reporting revenues were $45 million ($20 million collected in 2015 but not earned until 2016) and $60 million respectively.
(d)2016 expenses included a $25 million unrealized loss from reducing investments (classified as trading securities). The investments were sold in 2017 at a loss of $20 million. Gains or losses are reported in the tax return in the year when the securities are sold.
(e)During 2015, accounting income included an estimated loss of $15 million from having accrued a loss provision. The loss was paid in 2016 at which time it is tax deductible.
Required:
1.Which of the five differences described are temporary and which are permanent differences? Why?
2.Prepare schedule that reconciles the differences between profit before tax and taxable income for 2016 and 2017.
3.Prepare the appropriate journal entry to record current tax liability
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