Question

In: Accounting

Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products,...

Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of GTL are debating whether it can raise a deferred tax asset in relation to this loss in the financial statements for the current period.

The accounting profit and other relevant information of GTL for the year to 30 June 2019 are as follows:

Accounting profit (loss)

After debiting as expense:

  Goodwill impairment loss*

  Entertainment costs*

  Donation to political party*

  Depreciation expense – plant

  Long-service leave expense

For tax purposes:

  Tax depreciation for plant

  Long-service leave paid

*These items are non-deductible for tax purposes.

$(10 000 000)

8 000 000

1 000 000

            500 000

2 000 000

1 200 000

4 000 000

2 400 000

The company tax rate is 30%.

The Chief Executive Officer (CEO) of GTL instructed the Chief Financial Officer (CFO) to submit a report to the board providing advice on the raising of a deferred tax asset and specifying the conditions, if any, under which the asset could be recognised.

Required

  1. Explain how accounting profit and taxable profit differ and how each is treated when accounting for income taxes.                                                                                        

  1. Discuss when a deferred tax asset must be recognised.                                                      

  1. Calculate the taxable income.                                                                                         

  1. Prepare the journal entry for the deferred tax asset.                                           

Solutions

Expert Solution


Related Solutions

Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products,...
Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of GTL are debating whether it...
Accounting for company income tax Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as...
Accounting for company income tax Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of...
PIETROLUNGA TIMBER MERCHANTS LTD Pietrolunga is a small stock market-listed Italian timber merchant involved in forestry...
PIETROLUNGA TIMBER MERCHANTS LTD Pietrolunga is a small stock market-listed Italian timber merchant involved in forestry management, timber production, and the export of specialist woods used in the production of fine musical instruments – so-called “singing wood.” The company, based in the mountains of Trentino in the North Italy, has a reputation as the world’s finest producer of woods to produce concert-grade grand pianos. Pietrolunga has a thirty-year contract to supply all of the piano wood requirements for a leading...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2018 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2018: Date of issuance: June 17, 2015 Optionally redeemable beginning: June 18, 2017 Par value (gross proceeds): $ 6,900,000 Number of shares: 230,000 Liquidation preference per share: $ 30 Conversion price per...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2021 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2021: Date of issuance: June 17, 2018 Optionally redeemable beginning: June 18, 2020 Par value (gross proceeds): $ 3,750,000 Number of shares: 150,000 Liquidation preference per share: $ 25 Conversion price per...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2021 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2021: Date of issuance: June 17, 2018 Optionally redeemable beginning: June 18, 2020 Par value (gross proceeds): $ 2,800,000 Number of shares: 140,000 Liquidation preference per share: $ 20 Conversion price per...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2018 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2018: Date of issuance: June 17, 2015 Optionally redeemable beginning: June 18, 2017 Par value (gross proceeds): $ 2,800,000 Number of shares: 140,000 Liquidation preference per share: $ 20 Conversion price per...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2021 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2021: Date of issuance: June 17, 2018 Optionally redeemable beginning: June 18, 2020 Par value (gross proceeds): $ 6,000,000 Number of shares: 240,000 Liquidation preference per share: $ 25 Conversion price per...
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2018 annual report: Note 5. Convertible Preferred Stock (in part): The Company has the following Convertible Preferred Stock outstanding as of September 2018: Date of issuance: June 17, 2015 Optionally redeemable beginning: June 18, 2017 Par value (gross proceeds): $ 2,500,000 Number of shares: 100,000 Liquidation preference per share: $ 25.00 Conversion price per...
otorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The...
otorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 1,800,000 $ 1,980,000 $ 2,070,000 $ 2,160,000 $ 2,250,000 Cash $ 50,000 $ 65,000 $ 48,000 $ 40,000 $ 30,000 Accounts receivable, net 300,000 345,000 405,000 510,000 570,000 Inventory 600,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT