The draft statement of profit or loss of That?s Alright Ltd for the year ended 30 June 2017 showed a profit before tax of $22 240, included the following items of income and expense:

Additional information

(a) For tax purposes the carrying amount of plant sold was $15 000.

(b) The tax deduction for plant depreciation was $20 250. The accumulated depreciation on plant for tax purposes at 30 June 2017 is $40 250 (2016: $35 000).

(c) In the year ended 30 June 2016, the company recorded a tax loss. At 1 July 2016 carry forward tax losses amounted to $16 900. The company recognised a deferred tax asset in respect of these tax losses at 30 June 2016.

(d) Tax losses carried forward must be offset against any exempt income before being used to reduce taxable income.

(e) The company does not set off deferred tax liabilities and assets and the corporate tax rate is 30%.

Required

A. Prepare the current tax worksheet for the year ended 30 June 2017 and the applicable tax entries.

B. Discuss the factors the company should have considered before recognising a deferred tax asset with respect to the tax loss incurred in the year ended 30 June 2016?

C. Prepare the deferred tax worksheet as at 30 June 2017 and the applicable tax entries.

D. Discuss whether the company should

ACCT5521 Advanced Corporate Financial Accounting Week 1 Exercises Revision of Company Income Tax Question 1 Leo et al. (2015) Case Study 6.1 Aidan Ltd, a profitable company, purchased a machine on 1 July 2014 at a cost of $120 000. The machine had a useful life of 5 years and the company adopts the straight-line basis of depreciation. On 1 July 2015, the company reassessed the useful life of the machine down from the remaining 4 years to an expected 3 years. The accounting depreciation charge was adjusted accordingly. Because of a change in economic conditions, the machine was sold for $55 000 on 30 June 2017. The tax depreciation rate for this type of machine was 15% p.a. The company tax rate is 30%. Required For each of the 3 years ended 30 June 2015, 2016 and 2017, calculate the carrying amount and tax base of the asset, and determine the deferred tax entry in relation to the machine. Explain your answer. Question 2 Leo et al. (2015) Practice Question 6.13 The draft statement of profit or loss of That's Alright Ltd for the year ended 30 June 2017 showed a profit before tax of $22 240, included the following items of income and expense: Government grant (exempt from tax) $ 5 000 Proceeds on sale of plant 23 000 Carrying amount of plant sold 20 000 Impairment of goodwill 11 100 Bad debts expense 8 100 Depreciation expense - plant 14 000 Insurance expense 12 900 Long-service leave expense 14 500 The statements of financial position of That's Alright Ltd at 30 June 2017 and 30 June 2016 include the following assets and liabilities: THAT'S ALRIGHT LTD Statement of Financial Position (Extract) as at 30 June 2017 Assets Cash Accounts receivable Allowance for doubtful debts Prepaid insurance Plant Accumulated depreciation - plant Goodwill Accumulated impairment losses Deferred tax asset Liabilities Accounts payable Provision for long-service leave Current tax liability Deferred tax liability $ 6 000 96 000 (6 800 ) 3 400 140 000 (32 000 ) 22 200 (11 100 ) ? 78 000 13 200 ? ? 2016 $ 18 000 85 000 (5 200 ) 5 600 170 000 (28 000 ) 22 200 9 540 76 000 9 700 3780 Additional information (a)For tax purposes the carrying amount of plant sold was $15 000. (b)The tax deduction for plant depreciation was $20 250. The accumulated depreciation on plant for tax purposes at 30 June 2017 is $40 250 (2016: $35 000). (c) In the year ended 30 June 2016, the company recorded a tax loss. At 1 July 2016 carry forward tax losses amounted to $16 900. The company recognised a deferred tax asset in respect of these tax losses at 30 June 2016. (d)Tax losses carried forward must be offset against any exempt income before being used to reduce taxable income. (e)The company does not set off deferred tax liabilities and assets and the corporate tax rate is 30%. Required A. Prepare the current tax worksheet for the year ended 30 June 2017 and the applicable tax entries. B. Discuss the factors the company should have considered before recognising a deferred tax asset with respect to the tax loss incurred in the year ended 30 June 2016? C. Prepare the deferred tax worksheet as at 30 June 2017 and the applicable tax entries. D. Discuss whether the company should set off deferred tax liabilities and assets based on the requirements of AASB 112. 2