Question

In 2020, Pina Ltd., which follows IFRS, reported accounting income of $1,178,000 and the 2020 tax rate was 20%. Pina had two timing differences for tax purposes:

CCA on the company’s tax return was $476,500. Depreciation expense on the financial statements was $283,000. These amounts relate to assets that were acquired on January 1, 2020, for $1,906,000.

Accrued warranty expense for financial statement purposes was $138,100 (accrued expenses are not deductible for tax purposes). This is the first year Pina offers warranties.

Both of these timing differences will fully reverse over the next four years, as follows:

Year		Depreciation Difference		Warranty Expense		Rate
2021		$67,500		$19,100		20%
2022		51,500		28,600		20%
2023		40,500		40,000		18%
2024		34,000		50,400		18%
		$193,500		$138,100

Prepare the journal entries to record income taxes for 2020

In 2021 the government announced a further tax rate reduction will be effective for the 2024 taxation year. The new rate will be 15%. Prepare the journal entry to adjust deferred taxes for the reduced rate.

Answer 1

Pina Ltd:
Year-2020				Deferred tax liability calculation for 2020
Accounting Income	1178000
Add: Depreciation expense	283000				Depreciation	Warranty
Add: Accrued Warranty expenses	138100				difference	expense	Rate	Deferred tax liability
	1599100			2021	67500	19100	20%	9680
Less: CCA deduction as per the Income				2022	51500	28600	20%	4580
tax act	476500			2023	40500	40000	18%	90
Taxable Income	1122600	55400		2024	34000	50400	18%	-2952
								11398
Income tax	224520
				Deferred tax liability calculation for 2021
Deferred tax liability	11398
					Depreciation	Warranty
Journal entries to record income tax for 2020					difference	expense	Rate	Deferred tax liability
	Debit($)	Credit($)		2021	67500	19100	20%	9680
Income tax expense	224520			2022	51500	28600	20%	4580
Income tax payable		224520		2023	40500	40000	18%	90
				2024	34000	50400	15%	-2460
Deferred tax expense	11398							11890
Deferred tax liability		11398
Journal entries to record income tax for 2021
Deferred tax expense	492
Deferred tax liability		492