Seenath Ltd
Subject:LawPrice:3.87 Bought7
Seenath Ltd. began operations on January 1, 2020, and adheres to IFRS. Its pre-tax accounting income for the first two years was as follows: 2020 $ 80,000 2021 150,000 The following items caused the only differences between pre-tax accounting income and taxable income. 1. In 2020, the company collected $ 75,000 in rental revenue; of this amount, $ 25,000 was earned in 2020; the other $ 50,000 will be earned equally during 2021 and 2022. The full $ 75,000 was included in taxable income in 2020. 2. The company pays $ 5,000 a year for membership in a local golf club. 3. In 2021, the company terminated a top executive and agreed to pay $ 30,000 severance pay. This will be paid $ 10,000 each year for three years, starting in 2021. The 2021 payment was made as scheduled. The entire $ 30,000 was expensed in 2021 for book purposes. For tax purposes, the severance pay is deductible only when it is paid. The enacted tax rates at December 31, 2020 are: 2020 30% 2022 40% 2021 35% 2023 40%
prepare adjusting entries to record income taxes for 2021 (both current and deferred), show how the deerred tax asset or liability should be reported on the SFP at December 31 2021.
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Answer:
|
2021 |
Income Tax expense ( Bal Fig) |
61,250 |
|
|
Deferred Tax Asset ( NIL ) Note 1 |
- |
||
|
Deferred Tax Liability ( ) |
8,750 |
||
|
Income Tax Payable ( ) |
70,000 |
||
Note 1 : The DTA was created for Severance pay which belongs to Years 2022 and 2023, so this amount is still as it was last year, so no changes .
But out of the above, 10000*0.35 = 3500 , will be recovered next yr (2022) – So it is will be shown Under Current Asset in Statement of Financial Position(SFP) and ,
Rest 10000*0.40 = 3500 , will be recovered in the yr 2023 i.e. later than 1 year – So it is will be shown Under Non - Current Asset in Statement of Financial Position(SFP) as on 12/31/2021
Similarly , DTL left is 10000(For Rent portion of 25000*.40) which will be recovered in the next yr hence show it under Current Liability.
Now Finally Both Current Portion of DTA (3500) and DTL (10000) will be set off with each other and only the Net Current DTL will be shown in SFP = 10000 -3500 = 6500
