Question 6.3

At 30 June 2016, Grace Ltd had the following deferred tax balances:

Deferred tax liability

$18000

Deferred tax asset

15000

285Grace Ltd recorded a profit before tax of $80000 for the year to 30 June 2017, which included the following items:

Depreciation expense - plant

$7000

Doubtful debts expense

3000

Long-service leave expense

4000

For taxation purposes the following amounts are allowable deductions for the year to 30 June 2017:

Tax depreciation - plant

$8000

Bad debts written off

2000

Depreciation rates for taxation purposes are higher than for accounting purposes. A corporate tax rate of 30% applies.

Required

1. Prepare a current tax worksheet to determine the taxable income for the year to 30 June 2017.
2. Determine by what amount the balances of the deferred tax liability and deferred tax asset will increase or decrease for the year to 30 June 2017 because of depreciation, doubtful debts and long-service leave.
3. Prepare all journal entries to account for income tax assuming recognition criteria are satisfied.
4. What are the balances of the deferred tax liability and deferred tax asset at 30 June 2017?