question archive The draft statement of profit or loss of Event Light Ltd for the year ended 30 June 2020 showed a profit before tax of $25 240, included the following items of income and expense: Government grant (exempt from tax) Proceeds on sale of plant Carrying amount of plant sold Impairment of goodwill Bad debts expense Depreciation expense – plant Insurance expense Long-service leave expense 6 000 23 000 20 000 11 100 8 100 14 000 12 900 14 500 The statements of financial position of Event Light Ltd at 30 June 2020 and 30 June 2019 include the following assets and liabilities: EVENT LIGHT LTD Statement of Financial Position (Extract) as at 30 June 2020 2019 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 ? ? $ 18 000 88 000 (5 200) 4 600 170 000 (28 000) 22 200 — 8 540 76 000 9 700 — 3780 Additional information (a)For tax purposes the carrying amount of plant sold was $15 000
The draft statement of profit or loss of Event Light Ltd for the year ended 30 June 2020 showed a profit before tax of $25 240, included the following items of income and expense: Government grant (exempt from tax) Proceeds on sale of plant Carrying amount of plant sold Impairment of goodwill Bad debts expense Depreciation expense – plant Insurance expense Long-service leave expense 6 000 23 000 20 000 11 100 8 100 14 000 12 900 14 500 The statements of financial position of Event Light Ltd at 30 June 2020 and 30 June 2019 include the following assets and liabilities: EVENT LIGHT LTD Statement of Financial Position (Extract) as at 30 June 2020 2019 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 ? ? $ 18 000 88 000 (5 200) 4 600 170 000 (28 000) 22 200 — 8 540 76 000 9 700 — 3780 Additional information (a)For tax purposes the carrying amount of plant sold was $15 000
Subject:LawPrice:3.87 Bought7
The draft statement of profit or loss of Event Light Ltd for the year ended 30 June 2020 showed a profit before tax of $25 240, included the following items of income and expense:
|
Government grant (exempt from tax) Proceeds on sale of plant Carrying amount of plant sold Impairment of goodwill Bad debts expense Depreciation expense – plant Insurance expense Long-service leave expense |
6 000 23 000 20 000 11 100 8 100 14 000 12 900 14 500 |
The statements of financial position of Event Light Ltd at 30 June 2020 and 30 June 2019 include the following assets and liabilities:
|
EVENT LIGHT LTD Statement of Financial Position (Extract) as at 30 June |
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|
2020 |
2019 |
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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 ? ? |
$ |
18 000 88 000 (5 200) 4 600 170 000 (28 000) 22 200 — 8 540 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 $20 000. The accumulated depreciation on plant for tax purposes at 30 June 2020 is $40 250 (2019: $35 250).
(c)In the year ended 30 June 2019, the company recorded a tax loss. At 1 July 2019 carry forward tax losses amounted to $18 900. The company recognised a deferred tax asset in respect of these tax losses at 30 June 2019.
(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 2020 and the tax journal entries.
B.Prepare the deferred tax worksheet as at 30 June 2020 and the tax journal entries.
C.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 2019?
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Answer:
A) current tax worksheet for the year ended 30 June 2020
| Title | Amount |
| Profit | $25240 |
| Add: Difference of carry amount(20000-15000) | $5000 |
| Add: Difference accumulated depriciation(40250-35250) | $5000 |
| Less: Difference of the depreciation(20000-14000) | $6000 |
| Adjusted Profit | $29240 |
| Exesting tax on profit(@30% on 29240) | $8772 |
| After tax Income | $20468 |
the tax journal entries
| Title | Debt | Credit |
| depriciation | $4000 | |
| Accumulated depriciation(32000-28000) | $4000 | |
| Accumulated depriciation | $32000 | |
| To plant | $32000 | |
| Expense | $14000 | |
| Accumulated depriciation | $14000 | |
| Cash | $23000 | |
| To plant | $23000 | |
| Govt. Grant | $18,900 | |
| Accumulated loss | $18900 |
B)
| Deffered Tax liabilities | $3780 | |
| Tax assets | $3780 |
C)
Before recognizing deferred tax, company should consider plant carrying amount and accumulated depreciation account into considerations. and also timing difference of carrying amount of the plant. Net income should have calculated on the basis of net of all the losses carryforward in the current year from last financial year. Deferred tax assets and liability both should not be shown in the balance sheet it should be adjusted while calculated and should be shown in the balance sheet.
