Question:
Calculate deferred tax asset and deferred tax liability balances as of 30th June 2020. Prepare the deferred tax journal entries for the year ended 30th June 2020. Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances.
Background information The profit before tax, reported in the statement of comprehensive income of SuperX Ltd for the year ended 30 Jul 2020 amounted to: 16,340,000 Subscription revenue 510,000 Government award income 919,000 Doubtful debts expense 102,000 Depreciation (Equipment) 663,800 Depreciation (Buildings) 163,000 Maintenance expense 459,000 Employee benefits expense 306,000 Rent expense 153,000 Entertainment expense 255,300 The draft statements of financial position of the company at 30 June 2020 and 2019 showed the following assets and liabilities: 2020 ($) 2019 ($) Assets Cash 1,072,000 1,174,000 Inventory 2,297,000 2,093,000 Accounts receivable 6,638,000 6,331,000 Allowance for doubtful debts (531,000) (490,000) Prepaid rent 285,000 265,000 Equipment 6,638,000 6,638,000 Accumulated depreciation - Equipment (3,319,000) (2,655,200) Buildings 4,085,000 4,085,000 Accumulated depreciation - Buildings (1,634,000) (1,470,000) Land 2,553,000 2,553,000 Goodwill (net) 1,021,000 1,021,000 Deferred tax asset ? 51,720 Liabilities Accounts payable Provision for maintenance Provision for employee benefits Subscription received in advance Deferred tax liability 3,880,000 817,000 561,000 357,000 ? 3,472,000 612,000 408,000 255,000 0 Additional Information: Subscription revenue is tax assessable when it is received in cash Government award income is not tax assessable Doubtful debts are tax deductible when the company actually incurs bad debts/write off For accounting purpose, the equipment is depreciated using the annual straight line method at a rate of: For tax purpose, however, the equipment is depreciated using the annual straight line method at a rate of: Depreciation of buildings is not allowed as tax deductions and goodwill is not tax assessable Employee benefits are tax deductible when they are paid in cash to the employees Rent expense and maintenance expense are tax deductible when paid in cash Entertainment expense is not allowed as tax deduction Assume a tax rate for the financial years ending 30 June 2019 and 2020 to be: 10% 15% 30% Required: Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30 June 2020. Prepare a journal entry to recognise the current tax liability/tax loss. Calculate deferred tax asset and deferred tax liability balances as at 30 June 2020. Prepare the deferred tax journal entries for the year ended 30 June 2020. Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances. Show your calculation using deferred tax worksheets by creating separate columns for: carrying amount, tax base, taxable temporary differences and deductible temporary differences. Assume that by 1 December 2020 there was a change in tax rate to: 27.50% With reference to AASB112 Income Taxes, discuss the accounting treatment of the deferred tax asset and deferred tax liability balances as at 1 December 2020 following a lower tax threshold for the 2020-2021 financial year. Prepare the journal entries to record the effect of change in tax rate. Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30th June 2020. Prepare a journal entry to recognise the current tax liability/tax loss. $ 16,340,000 Accounting Profit Before tax PLUS: Subscription revenue received Doubtful Debts Expense Accounting Depreciation - Equipment Accounting Depreciation - Building Employee Benefits Expense Rent Expense Maintanance Expense Entertainment Expense 612,000 102,000 663,800 163,000 306,000 153,000 459,000 255,300 2,714,100 MINUS: Subscription Revenue Government Award income Bad Debt Written off Tax Depreciation - Equipment Employee Benefits Paid Rent expense paid Maintanance Expense Paid 510,000 919,000 61,000 995,700 153,000 173,000 254,000 3,065,700 Taxable income Tax Rate Tax Payable 15,988,400 30 4,796,520 Cr Journal entry: Income Tax Expense Current Tax Liability/ Tax Payable Dr 4,796,520 4,796,520 Calculate deferred tax asset and deferred tax liability balances as at 30th June 2020. Prepare the deferred tax journal entries for the year ended 30th June 2020. Carrying Amount Tax Base TTD DTD Accounts ASSETS Cash inventory Accounts receivable Prepaid rent Equipment Buildings Land Goodwill(net) LIABILITIES Accounts payable Provision for maintanance Provision for employee benefits Subscription received in advance Total Temporary Difference Exempt difference Buildings Goodwill (net) Net total Difference Deferred Tax Asset (@30%) Deferred Tax liability (@30%) Less opening balance Adjustment for the year Dr Cr Journal entry: Deffered tax Asset Deffered tax liability Income tax Expense
