Question

Gold Star Ltd began operations on 1 July 2019. On that date the company purchased several non-current assets, details of which follow:

	Vehicles	Equipment	Furniture
Cost	$88,000	$190,000	$48,000
Depreciation rate:
Accounting	25%	25%	25%
Tax	40%	30%	50%
Method	Reducing Balance	Straight-line	Straight-line
Residual	10%	Zero	Zero

Additional information:

1. Insurance of $19,000 was paid for during the year. Of this amount, $13,200 is prepaid for next year.
2. The rent expense for the current year is $17,600, of which $4,600 was paid in cash. The balance was classified for accounting purposes as rent payable.
3. Employee Entitlements (Annual, Sck and Long Service Leave) totalling $8,000 were provided for during the year. No payments were made.

4. For year ended 30 June 2020 the profit before income tax was $47,500

5. Tax rate is 30%.

Question 1 Current Tax Schedule

Calculate taxable income and current tax liability using the schedule entitled “Current Tax Worksheet”. Provide the journal entry to record current tax liability. Exclude journal narrations.

Question 2 Deferred Tax Schedule

Complete the schedule entitled “Deferred Tax Worksheet” showing the calculation of deferred tax liabilities and deferred tax assets for the year ended 30 June 2020. Note that not all cells will be required to be filled. Provide journal entries to record deferred tax assets and/or deferred tax liabilities (if any). Do not offset deferred tax assets against deferred tax liabilities. Exclude journal narrations.

Answer 1

1)First Calculate depreciation as per Accounting rates(Companies Act)

Note: Depreciation = Cost * depreciation rate * (no. of months put to use/ 12 months)

here assets are used for the whole year. So no pro rata calculation needed

Asset	Cost(a)	Dep rate(b)	Depreciation(a*b)
Vehices	88000	25%	22000
Equipment	190000	25%	47500
Furniture	48000	25%	12000
Total			81500

2)Next Calculate depreciation as per tax rates(Income Tax Act)

Asset	cost	dep rate	dep
Vehices	88000	40	35200
Equipment	190000	30	57000
Furniture	48000	50	24000
Total			116200

3) Total Insurance paid = 19000

Next year insurance = 13200

current year insurance= 5800

As per income tax act, Insurance paid is allowed as deduction = 19000

As per companies act, Insurance for the current year is allowed as an expense= 5800

4)Rent for the current year =17600

Rent paid by cash =4600

Rent payable =13000

As per income tax act, Rent  paid is allowed as deduction = 4600

As per companies act, rent for the current year is allowed as an expense= 17600

5) Employee entitlements provided during the year but not yet paid = 8000

As per income tax act, employee entitlements paid is allowed as deduction = 0

As per companies act, employee entitlements for the current year is allowed as an expense= 8000

(1) CURRENT TAX SCHEDULE:

particulars	Amt	Amt	Amt($)
Accounting Profit(PBT)			47500
Add: Accounting expenses that are not deductible
a) Depreciation as per Companies Act	81500
b)Employee Benefits provided but not paid	8000
c)Rent not paid	13000	102500
Less:Items that are allowed under Income Tax
a)Insurance paid for next year	13200
b)Depreciation as per Income Tax Act	116200	(129400)	(26900)
Taxable Profit			20600
Add: Tax @ 30%			6180
Profit After Tax			14420

Entry for Current Tax liability:

Profit & loss A/c----------Dr 14420

To Provision for Tax 14420

(Being Tax liability to be paid)

(2) Deferred Tax Schedule:

	As per Books	As per Tax	Diff	DTA/DTL
Depreciation	81500	116200	(34700)	DTL
Insurance	5800	19000	(13200)	DTL
			(47900)
Tax @ 30%			(14370)

Entry for Deferred Tax Liability

Profit & loss A/c -----------Dr 14370

To Deferred Tax Liability 14370

	As per Books	As per Tax	Diff	DTA/DTL
Rent	17600	4600	13000	DTA
Employee Entitlements	8000	0	8000	DTA
			21000
Tax @ 30%			6300

Entry for deferred Tax Asset

Deferred Tax Asset----------------- Dr 6300

To Profit & loss A/c 6300

Note:

In order to DTA and DTL,

If Tax Expenses > Accounting expenses then Deferred Tax Liability

If Tax expenses < Accounting expenses then Deferred Tax Asset