Question

Question 1

At 30 June 2019, Beta Ltd had the following deferred tax balances: Deferred tax liability $18,000 Deferred tax asset 15,000 Beta Ltd recorded a profit before tax of $80,000 for the year to 30 June 2020, which included the following items: Depreciation expense – plant $7,000 Doubtful debts expense 3,000 Long-service leave expense 4,000 For taxation purposes the following amounts are allowable deductions for the year to 30 June 2020: Tax depreciation – plant $8,000 Bad debts written off 2,000 Depreciation ratesfor taxation purposes are higher than for accounting purposes. A corporate tax rate of 30% applies.

Required:

a) Determine the taxable income and income tax payable for the year to 30 June 2020. (2.5 Marks)

b) Determine by what amount the balances of the deferred liability and deferred tax asset will increase or decrease for the year to 30 June 2020 because of depreciation, doubtful debts and long-service leave.

c) Prepare the necessary journal entries to account for income tax assuming recognition criteria are satisfied. (2.5 marks)

d) What are the balances of the deferred tax liability and deferred tax asset at 30 June 2020?

Answer 1

Answer-a:

Answer-b:

(i) Amount by which deferred tax liability will increase due to depreciation = ($8,000 - 7,000)*30% = $300

(ii) Amount by which deferred tax asset will increase due to doubtful debt = ($3,000 - 2,000)*30% = $300

(iii) Amount by which deferred tax asset will increase due to long service leave = ($4,000 - 0)*30% = $1,200

Answer-c:

Answer-d:

(i) Balance of deferred tax liability at 30 June, 2020 = $18,000 + 300 = $18,300

(ii) Balance of deferred tax asset at 30 June, 2020 = $15,000 + 1,500 = $16,500