Question
The draft statement of financial position at 30 June 2021 for Red Ltd contained the following assets and liabilities: 2021 2020 $ $ Assets Cash
The draft statement of financial position at 30 June 2021 for Red Ltd contained the following assets and liabilities:
| 2021 | 2020 |
| $ | $ |
Assets |
|
|
Cash | 1,000 | 7,500 |
Accounts receivable | 84,000 | 76,800 |
Allowance for doubtful debts | (5,000) | (3,200) |
Inventory | 65,100 | 58,300 |
Interest receivable | 2,000 | - |
Prepaid rent | 3,800 | 2,400 |
Plant – cost | 220,000 | 220,000 |
Less: accumulated depreciation | (99,000) | (66,000) |
Goodwill | 6,000 | 6,000 |
Deferred tax asset | ? | 30,860 |
Total assets |
| 332,660 |
|
|
|
Liabilities |
|
|
Accounts payable | 70,200 | 73,600 |
Provision for employee benefits | 62,000 | 61,000 |
Loan payable | 100,000 | 100,000 |
Deferred tax liability | ? | 2,220 |
Total liabilities |
| 236,820 |
Additional information:
- The plant’s tax depreciation rate is 10% and accounting rate is 15% per year. Both rates use the straight-line method. The plant was acquired 3 years ago and there have been no purchases or sale of plant since.
- The deferred tax asset (DTA) balance at 30 June 2020 comprised:
DTAs relating to temporary differences: $25,860
DTAs relating to carried forward tax losses: $5,000
During the year ended 30 June 2021, a taxable income was calculated and the carried forward tax losses were claimed in full. The journal entry for this adjustment was already recorded.
- The tax rate is 30%.
Required:
- Calculate the deferred tax assets and deferred tax liabilities for the year ended 30 June 2021 using a worksheet with the following headings:
Account | Carrying Amount | Future Deductible Amount | Tax Base | Taxable Temporary Differences | Deductible Temporary Differences |
Show all accounts.
- Prepare the necessary journal entries to record the deferred tax asset and deferred tax liability adjustment as at 30 June 2021.
- With reference to the relevant accounting standard, explain whether all temporary differences that exist at balance date will give rise to deferred tax assets or deferred tax liabilities?
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