CHAPTER 5 Accounting for company income tax
CHAPTER 5 tax
Accounting for company income
Question 5.1 $
Profit before income tax
650 000
Adjusted for permanent differences add
Entertainment allowance
50 000
Depreciation on buildings
100 000
Impairment loss ‐ Goodwill
10 000
Impairment loss ‐ Investments Accounting profit
440 000 1 250 000
Multiplied by tax rate
x 30%
Income tax expense
375 000
Question 5.2 The difference between profit (before tax) and accounting profit and taxable income are permanent differences. Profit (before tax) includes all revenues and expenses including those that are not assessable or not deductible under income tax law, whereas accounting profit and taxable income do not include permanent differences. There is no difference between accounting profit and taxable income, as both amounts do not include permanent differences.
Question 5.3 $
Profit before income tax
36 000
Adjusted for permanent differences less
Dividend income
72 000 (36 000)
add
Impairment loss ‐ Goodwill
50 000
Depreciation on buildings
200 000
© 2010 Cengage Australia Pty Limited
114 Company accounting and financial statements 5e solutions manual
214 000 less Investment allowance
90 000
Accounting profit
124 000
Multiplied by tax rate
x 30%
Income tax expense
37 200
Question 5.4 $
Profit before income tax
330 000
Adjusted for permanent differences
less
Dividend income
35 000
Gold mining profits
5 000 290 000
add
Impairment loss ‐ Goodwill
10 000
Depreciation on buildings
10 000
Entertainment expenses
25 000
Accounting profit
335 000
Multiplied by tax rate
x 30%
Income tax expense
100 500
less Income tax expensed
96 500
Income tax underprovided
4 000
The solution assumes that the company is in a position to finalise its taxation position at 30 June 2012.
General journal of J & K Trading Ltd Date
Particulars
Debit
30 Jun 2012 Income tax expense Income tax payable Adjustment for underprovided income tax
© 2010 Cengage Australia Pty Limited
Credit $
$
4 000
4 000
Chapter 5: Accounting for company income tax 115
Date
General ledger of J & K Trading Ltd Debit $ Profit and loss
Particulars
30 Jun 2012 Service income
Credit
Balance $
$
380 000 380 000 Cr
Wages
40 000
340 000 Cr
Impairment loss ‐ Goodwill
10 000
330 000 Cr
Depreciation on buildings
15 000
Dividends income
315 000 Cr
35 000 350 000 Cr
25 000
325 000 Cr
Gold mining profits
5 000 330 000 Cr
Income tax expense Income tax expense (adjustment)
96 500
Entertainment expenses
4 000
Profit and loss
229 500
233 500 Cr
229 000 Cr
Nil
J & K Trading Ltd Statement of financial position as at 30 June 2012 (Extract)
$
Current liabilities Income tax payable
24 000
Question 5.5 Debtors
$
Debtors balance at 1 July
60 000
Add sales
400 000
460 000
less receipts from debtors
(300 000)
160 000
less Bad debts
(30 000)
Debtors balance at 30 June
130 000
less Allowance for doubtful debts @ 5%
6 500
Carrying cost of debtors at 30 June
123 500
Income method: Accounting records
Taxation records
Temporary Temporary difference amount
© 2010 Cengage Australia Pty Limited
116 Company accounting and financial statements 5e solutions manual
Bad and doubtful debts
$36 500
$30 000
$6 500 Deferred tax asset
Statement of financial position method: $
Carrying cost of debtors at 30 June
123 500
less Future assessable amount
Nil
plus Future deductible amount (doubtful debts)
6 500
equals Tax base of asset
130 000
less Carrying cost of asset
(123 500)
Deferred tax asset temporary difference
6 500
Question 5.6 Income method:
Accounting Taxation records Temporary amount records
Temporary difference
Long service leave
$30 000
$20 000
$10 000 Deferred tax asset
Annual leave
$45 000
$40 000
$5 000 Deferred tax asset
Statement of financial position method: Long Service Leave $
Annual Leave
Leave payable balance at 1 July
80 000
5 000
Add amount expensed during year
30 000
45 000
110 000
50 000
less amount paid during year
(20 000)
(40 000)
Carrying cost of leave at 30 June
90 000
10 000
plus Future assessable amount (amount paid)
20 000
40 000
(30 000)
(45 000)
80 000
5 000
less Carrying cost of liability
(90 000)
(10 000)
Deferred tax asset temporary difference
(10 000)
(5 000)
less Future deductible amount (amount expensed) equals Tax base of liability
© 2010 Cengage Australia Pty Limited
$
Chapter 5: Accounting for company income tax 117
Question 5.7 Income statement method: Accounting records $
Taxation records $
Deferred tax asset Temporary difference $
Bad and doubtful debts
15 000
10 000
5 000
Annual leave
35 000
20 000
15 000
Statement of financial position method: Debtors $
Debtors balance at 30 June
60 000
less Allowance for doubtful debts
10 000
Carrying cost of debtors at 30 June
50 000
less Future assessable amount
Nil
plus Future deductible amount (doubtful debts)
10 000
equals Tax base of asset
60 000
less Carrying cost of asset
(50 000)
Deferred tax asset temporary difference
10 000
Annual Leave $
Annual leave balance at 1 July
25 000
Add amount expensed during year
35 000
60 000
less amount paid during year
(20 000)
Carrying cost of annual leave at 30 June
40 000
plus Future assessable amount (amount paid)
20 000
less Future deductible amount (amount expensed)
(35 000)
equals Tax base of liability
25 000
Carrying cost of liability
40 000
Less tax base of liability
25 000
Deferred tax asset temporary difference
15 000
© 2010 Cengage Australia Pty Limited
118 Company accounting and financial statements 5e solutions manual
Question 5.8 $
Profit before income tax
720 000
Adjusted for permanent differences
Entertainment expenses
5 000
Impairment loss ‐ Goodwill
2 500
Accounting profit
727 500
Adjusted for temporary differences
Annual and long service leave
4 200
Bad and doubtful debts
1 500
Profit before timing differences
733 200 Accounting records
Taxation records
Temporary result
$
$
$
733 200
733 200
Annual and long service leave
4 200
0
4 200
Bad and doubtful debts
1 500
500
1 000
727 500
Deferred tax asset Deferred tax asset
732 700
x 30%
x 30%
218 250
219 810
210 000
210 000
8 250
9 810
Profit before temporary differences less temporary differences
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax asset = ($4 200 + $1 000 = $5 200 x .30 = $1 560) General journal of Bongo Ltd Date
Particulars
Debit $
Credit $
30 June Income tax expense Deferred tax asset
© 2010 Cengage Australia Pty Limited
8 250
1 560
Chapter 5: Accounting for company income tax 119
Income tax payable Income tax adjustments
9 810
OR: $
Profit before income tax
720 000 Accounting profit
Adjusted for permanent differences
$
727 500
Adjusted for temporary differences
Entertainment expenses
5 000
Annual and long service leave
4 200
Impairment loss ‐ Goodwill
2 500
Bad and doubtful debts
1 000
Accounting profit
727 500 Taxable income
732 700
30%
30%
Income tax expense
218 250 Income tax payable
219 810
less Income tax expensed
210 000 less Income tax expensed
210 000
Income tax expense adjustment
8 250 Income tax payable adjustment
Deferred tax assets
9 810
$
Annual and long service leave
4 200
Bad and doubtful debts
1 000 5 200 x 30%
Deferred tax asset
1 560
General journal of Bongo Ltd Date
Particulars
Debit
30 June Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset Income tax payable Recognised affect of temporary differences
Credit $
$
8 250
8 250
1 560
1 560
Question 5.9 $
Profit before income tax
550 000
Adjusted for permanent differences Impairment loss ‐ Investments © 2010 Cengage Australia Pty Limited
150 000
120 Company accounting and financial statements 5e solutions manual
Exempt dividends income
(30 000)
Accounting profit
670 000
Adjusted for temporary differences
Annual leave
20 000
Long service leave
14 900
Bad and doubtful debts
5 100
Profit before timing differences
710 000 Accounting records
Taxation records
Temporary result
$
$
$
710 000
710 000
Annual leave
20 000
15 000
Long service leave
14 900
Profit before temporary differences less temporary differences
Bad and doubtful debts Accounting profit
2 600
670 000
688 700
x 30%
x 30%
201 000
206 610
210 000
210 000
Tax rate Income tax expense Income tax payable less Income tax expensed
3 700 11 200 Deferred tax asset
5 100
Taxable income
5 000 Deferred tax asset 2 500 Deferred tax asset
Income tax expense adjustment (9 000) Income tax payable (3 390) adjustment Deferred tax asset = ($5 000 + $11 200 + $2 500 = $18 700 x .30 = $5 610) General journal of Pine Ltd Date
Particulars
Debit
30 June Income tax expense
Credit $
$
111 000
5 610
16 61
Deferred tax asset Income tax liability Taxation adjustments
OR: $
Profit before income tax
550 000
Accounting profit
© 2010 Cengage Australia Pty Limited
$
670 000
Chapter 5: Accounting for company income tax 121
Adjusted for permanent differences
Impairment loss ‐ Investments 150 000 Exempt dividends income Accounting profit
Adjusted for temporary differences Annual leave
(30 000)
Long service leave
670 000
Bad and doubtful debts
x 30%
Taxable income
5 000 11 200 2 500 688 700
Income tax expense
201 000
x 30%
less Income tax expensed
190 000
Income tax payable
206 610
Income tax expense adjustment
111 000
less Income tax expensed
190 000
Income tax payable adjustment
16 610
Deferred tax assets $
Annual leave
5 000
Long service leave
11 200
Bad and doubtful debts
2 500 18 700 x 30%
Deferred tax asset
5 610
Question 5.10 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Depreciation ‐ equipment
25 000
37 500
12 500
Depreciation ‐ machinery
80 000
120 000
40 000
Equipment $
Equipment balance at 30 June
250 000
less Accumulated depreciation at 10% p.a.
(25 000)
Carrying cost of equipment at 30 June
225 000
less Future assessable amount
(225 000)
plus Future deductible amount
212 500
equals Tax base of asset
212 500
Carrying cost of asset
225 000
less Tax base of asset
(215 500)
© 2010 Cengage Australia Pty Limited
122 Company accounting and financial statements 5e solutions manual
Deferred tax liability temporary difference
12 500
Machinery $
Machinery balance at 30 June
400 000
less Accumulated depreciation at 20% p.a.
(80 000)
Carrying cost of equipment at 30 June
320 000
less Future assessable amount
(320 000)
plus Future deductible amount
280 000
equals Tax base of asset
280 000
Carrying cost of asset
320 000
less Tax base of asset
(280 000)
Deferred tax liability temporary difference
40 000
Question 5.11 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Revenues Interest
530 000
500 000
30 000
70 000
85 000
15 000
Expenses Advertising
Statement of financial position method: Carrying cost of accrued revenue (sales) less Future assessable amount
30 000 (30 000)
plus Future deductible amount
Nil
equals
Nil
Carrying cost of asset
30 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
30 000
Carrying cost of prepaid expense (advertising)
© 2010 Cengage Australia Pty Limited
15 000
Chapter 5: Accounting for company income tax 123
less Future assessable amount
(15 000)
plus Future deductible amount
Nil
equals Tax base of asset
Nil
Carrying cost of asset
15 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
15 000
Question 5.12 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Expenses Depreciation Wages
50 000
75 000
25 000
250 000
270 000
20 000
Statement of financial position method: Equipment $
Equipment balance as at 30 June
500 000
less Accumulated depreciation
(50 000)
Carrying cost of equipment at 30 June
450 000
less Future assessable amount
(450 000)
plus Future deductible amount
425 000
equals Tax base of asset
425 000
Carrying cost of asset
450 000
less Tax base of asset
(425 000)
Deferred tax liability temporary difference
25 000
Wages Carrying cost of prepaid expense (wages) less Future assessable amount plus Future deductible amount
© 2010 Cengage Australia Pty Limited
20 000 (20 000) Nil
124 Company accounting and financial statements 5e solutions manual
equals Tax base of asset
Nil
Carrying cost of asset
20 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
20 000
Question 5.13 Accounting records
Revenues
Taxation records
Temporary result
$
$
$
750 000
700 000
50 000
Deferred tax liability
Commission
25 000
20 000
5 000
Deferred tax liability
Rent revenue
30 000
30 000
0
805 000
750 000
60 000
60 000
0
Depreciation of vehicles
120 000
180 000
60 000
Deferred tax liability
Wages
160 000
175 000
15 000
Deferred tax liability
465 000
335 000
Sales
less expenses Advertising
Accounting profit Taxable income
Question 5.14 Profit before income tax
90 000
Adjusted for permanent differences
Depreciation on buildings
5 000
Accounting profit
95 000
Adjusted for temporary differences
Depreciation on computers
15 000
Interest received
(6 000)
Profit before timing differences
104 000 Accounting records
Taxation records
© 2010 Cengage Australia Pty Limited
Temporary result
Chapter 5: Accounting for company income tax 125
$
$
$
Profit before temporary differences
104 000
104 000
Adjusted for temporary differences
Interest received
6 000 110 000
Depreciation on computers
15 000
Accounting profit
Income tax expense
Income tax expense adjustment
22 500 7 500 Deferred tax liability
84 500
x 30%
x 30%
28 500
25 350
26 000
26 000
2 500
(650)
Income tax payable less Income tax expensed
107 000
95 000
Taxable income Tax rate
3 000 3 000 Deferred tax liability
Income tax payable adjustment
General journal of Banksia Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax expense
2 500
Income tax payable
650
3 150
Deferred tax liability Taxation adjustments
OR: $
Profit before income tax
90 000 Accounting profit
Adjusted for permanent differences Depreciation on buildings
$
95 000
Adjusted for temporary differences 5 000 Depreciation on computers
Accounting profit
(7 500)
95 000 Interest received
(3 000)
x 30% Taxable income
84 500
Income tax expense
28 500
x 30%
less Income tax expensed
26 000 Income tax payable
25 350
Income tax expense adjustment
2 500 less Income tax expensed
© 2010 Cengage Australia Pty Limited
26 000
126 Company accounting and financial statements 5e solutions manual
Income tax payable adjustment
(650)
Deferred tax liabilities
$
Depreciation on computers
7 500
Interest received
3 000
10 500
x 30%
Deferred tax liability
3 150
Question 5.15 $
Profit before income tax
126 000
Adjusted for permanent differences
Entertainment expenses
14 000
Establishment costs
2 000
Dividends received
(5 200)
Accounting profit
136 800
Adjusted for temporary differences
Commission received
(33 000)
Depreciation on lathes
50 000
Promotion expenses
120 000
Profit before timing differences
273 800 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
273 800
273 800
Adjusted for temporary differences
33 000
21 000
306 800
294 800
50 000
100 000
50 000 Deferred tax liability
120 000
122 000
2 000 Deferred tax liability
Commission received
Depreciation on lathes Promotion expenses
© 2010 Cengage Australia Pty Limited
12 000 Deferred tax liability
Chapter 5: Accounting for company income tax 127
Accounting profit
136 800
72 800
Tax rate
x 30%
x 30%
Income tax expense
41 040
21 840
42 000
42 000
(960)
(20 160)
Taxable income
Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax liability = ($12 000 + $50 000 + $2 000) = $64 000 x .30 = $19 200 General journal of Erica Ltd Date
Particulars
Debit
Credit $
$
20 160
Income tax expense
960
Deferred tax liability
19 200
30 June Income tax payable
Taxation adjustments
OR: $
Profit before income tax
126 000 Accounting profit
Adjusted for permanent differences Entertainment expenses
$
136 800
Adjusted for temporary differences 14 000
Commission received
(12 000)
Establishment costs
2 000
Depreciation on lathes
(50 000)
Dividends received
(5 200)
Accounting profit
Promotion expenses
(2 000)
136 800
72 800
x 30%
x 30%
Income tax expense
41 040 Income tax payable
21 840
less Income tax expensed
42 000 less Income tax expensed
42 000
Income tax expense adjustment
(960) Income tax payable adjustment
(20 160)
Deferred tax liabilities
$
Commission received
12 000
Depreciation on lathes
50 000
Promotion expenses
2 000
© 2010 Cengage Australia Pty Limited
128 Company accounting and financial statements 5e solutions manual
64 000
x 30%
Deferred tax liability
25 600
Question 5.16 $
Profit before income tax
400 000
Adjusted for permanent differences
Impairment loss ‐ goodwill
20 000
Exempt income
(30 000)
Accounting profit
390 000
Adjusted for temporary differences
Interest income
(30 000)
Repairs and maintenance
110 000
Depreciation
100 000
Bad and doubtful debts
50 000
Long service leave
5 000
Profit before timing differences
625 000 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
625 000
625 000
Adjusted for temporary differences
120 000 90 000
Deferred tax asset
Interest income
30 000
655 000
745 000
Repairs and maintenance
110 000
65 000 45 000
Deferred tax asset
Depreciation
100 000
190 000 90 000
Deferred tax liability
50 000
25 000 25 000
Deferred tax asset
Bad and doubtful debts Long service leave Accounting profit Taxable income Tax rate
5 000
0
5 000
Deferred tax asset
390 000
465 000
x 30%
x 30%
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 129
Income tax expense
117 000
139 500
115 000
115 000
2 000
24 500
Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax asset = ($90 000 + $45 000 + $25 000 + $5 000) x .30 = $49 500 Deferred tax liability = $90 000 x .30 = $27 000 General journal of AZ Ltd Date
Particulars
Debit
Credit $
$
2 000
49 500
Income tax liability
24 500
Deferred tax liability
27 000
27 000
Deferred tax asset
27 000
Offset deferred tax liability
30 June Income tax expense Deferred tax asset
Taxation adjustments
Deferred tax liability
OR: $
Profit before income tax
400 000 Accounting profit
Adjusted for permanent differences Goodwill amortisation Accounting profit
390 000
Adjusted for temporary differences 20 000
Exempt income
$
Interest income
90 000
(30 000)
Repairs and maintenance
45 000
390 000
Depreciation
x 30%
Bad and doubtful debts
25 000
Income tax expense
117 000
less Income tax expensed
115 000
465 000
2 000
x 30%
Income tax expense adjustment
Long service leave
(90 000)
Income tax payable
139 500
less Income tax expensed
115 000
Income tax payable adjustment Deferred tax assets Interest income
5 000
$ Deferred tax liabilities
90 000
Depreciation
© 2010 Cengage Australia Pty Limited
24 500 $
90 000
130 Company accounting and financial statements 5e solutions manual
Repairs and maintenance
45 000
Bad and doubtful debts
25 000 Deferred tax liability
Long service leave
x 30% 27 000
5 000 165 000 x 30%
Deferred tax asset
49 500 General journal of AZ Ltd
Date
Particulars
Debit
Credit $
$
24 500
Income tax payable
24 500
Increased income tax payable
49 500
49 500
27 000
27 000
49 500
49 500
27 000
27 000
30 June Income tax expense
Deferred tax asset Income tax revenue Adjustments to income tax
Income tax expense Deferred tax liability Adjustments to income tax
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
Question 5.17 $
Profit before income tax
280 000
Adjusted for permanent differences Depreciation on buildings Accounting profit
5 000 285 000
Adjusted for temporary differences
Depreciation of furniture
20 000
Doubtful and bad debts
10 000
Annual leave
15 000
Long service leave
21 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 131
Profit before timing differences
351 000
Accounting records
Taxation records
Temporary result
$
$
$
351 000
351 000
Depreciation of furniture
20 000
40 000
20 000 Deferred tax liability
Long service leave
15 000
6 000 Deferred tax asset
Doubtful and bad debts
21 000 10 000
6 000
4 000 Deferred tax asset
Annual leave
15 000
10 000
5000 Deferred tax asset
285 000
280 000
Tax rate
x 30%
x 30%
Income tax expense
85 500
84 000
85 500
85 500
Income tax expense adjustment Income tax payable (1 500) adjustment Deferred tax asset = ($5 000 + $4 000 + $6 000) = $15 000 x .30 = $4 500
Profit before temporary differences Adjusted for temporary differences
Accounting profit Taxable income
Income tax payable less Income tax expensed
Deferred tax liability = $20 000 x .30 = $6 000 General journal of Able Ltd Date
Particulars
Debit
30 June Income tax payable Deferred tax asset Deferred tax liability Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
Credit $
$
1 500
4 500
6 000
4 500
4 500
OR: $
Profit before income tax
280 000 Accounting profit
Adjusted for permanent differences
Adjusted for temporary differences
© 2010 Cengage Australia Pty Limited
$
285 000
132 Company accounting and financial statements 5e solutions manual
Depreciation on buildings
5 000
Accounting profit
285 000
Depreciation of furniture
(20 000)
Annual leave
5 000
x 30%
Doubtful and bad debts
4 000
Income tax expense
85 500
Long service leave
6 000
less Income tax expensed
85 500
280 000
0
x 30%
Income tax expense adjustment
Deferred tax assets
$
Annual leave
5 000
Doubtful and bad debts
4 000
Long service leave
6 000
Deferred tax asset
Income tax payable
84 000
less Income tax expensed
85 500
Income tax payable adjustment
(1 500)
Deferred tax liabilities
$
Depreciation – furniture
20 000 x 30%
Deferred tax liability
6 000
15 000
x 30%
4 500
General journal of Able Ltd Date
Particulars
Debit
Credit $
$
1 500
1 500
4 500
Income tax revenue
4 500
Recognised temporary differences
6 000
Deferred tax liability
6 000
Recognised temporary differences
4 500
4 500
4 500
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 133
Deferred tax asset Offset of deferred tax liability
4 500
Question 5.18 Year ended 30 June 2012 $
Profit before income tax
252 000
Adjusted for permanent differences
Impairment loss ‐ Goodwill
5 000
Accounting profit
257 000
Adjusted for temporary differences
Bad and doubtful debts
9 000
Annual leave
25 000
Depreciation
4 000
Annual leave
5 000
Profit before timing differences
300 000
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
300 000
300 000
Adjusted for temporary differences
9 000
6 000
3 000 Deferred tax asset
25 000
0
25 000 Deferred tax asset
Depreciation
4 000
6 000
2 000
Annual leave
5 000
4 000
1 000 Deferred tax asset
257 000
284 000
Tax rate
x 30%
x 30%
Income tax expense
77 100
85 200
75 000
75 000
2 100
Bad and doubtful debts Long service leave
Accounting profit Taxable income
Income tax payable less Income tax expensed Income tax expense adjustment
© 2010 Cengage Australia Pty Limited
Deferred tax liability
134 Company accounting and financial statements 5e solutions manual
Income tax payable adjustment
10 200
OR: $
Profit before income tax Adjusted for permanent differences
252 000 Accounting profit
$
257 000
Adjusted for temporary differences
Impairment loss ‐ Goodwill
5 000
Accounting profit
257 000 Bad and doubtful debts
3 000
x 30% Long service leave
25 000
Income tax expense
77 100 Depreciation
(2 000)
less Income tax expensed
75 000 Annual leave
1 000
Income tax expense adjustment
Deferred tax assets
2 100
284 000
x 30%
$
Long service leave
25 000
Income tax payable
85 200
less Income tax expensed
75 000
Income tax payable adjustment
10 200
Deferred tax liabilities Depreciation
Bad and doubtful debts
3 000
Annual leave
1 000 Deferred tax liability
$
2 000 x 30% 600
29 000 x 30% Deferred tax asset
8 700
Year ended 30 June 2013 $
Profit before income tax
351 500
Adjusted for permanent differences Impairment loss ‐ Goodwill Accounting profit
5 000 356 500
Adjusted for temporary differences Bad and doubtful debts Annual leave
7 500 25 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 135
Depreciation
4 000
Annual leave
7 000
Profit before timing differences
400 000 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
400 000
400 000
Adjusted for temporary differences
Bad and doubtful debts Long service leave
7 500
4 500 3 000 Deferred tax asset
25 000
20 000 5 000 Deferred tax asset
Depreciation
4 000
4 000
Annual leave
7 000
6 500
356 500
365 000
x 30%
x 30%
106 950
109 500
110 000
110 000
(3 050)
(500)
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
0
500 Deferred tax asset
Deferred tax asset = ($3 000 + $5 000 + $500) = $8 500 x .30 = $2 550
OR: $
Profit before income tax
$
351 500 Accounting profit
Adjusted for permanent differences Impairment loss ‐ Goodwill Accounting profit
Adjusted for temporary differences 5 000 356 500
356 500
Bad and doubtful debts
3 000
Long service leave
5 000
x 30%
Depreciation
0
Income tax expense
106 950
Annual leave
500
less Income tax expensed
110 000
365 000
(3 050)
x 30%
Income tax expense adjustment
Income tax payable
© 2010 Cengage Australia Pty Limited
109 500
136 Company accounting and financial statements 5e solutions manual
less Income tax expensed
110 000
Income tax payable adjustment
(500)
Deferred tax asset = ($3 000 + $5 000 + $500) = $8 500 x .30 = $2 550
General ledger of Spur Ltd Date
Particulars
Debit
Credit
Balance
$
$
30 June 2012 Income tax revenue
8 700
8 700 Dr
Deferred tax liability
600
8 100 Dr
30 June 2013 Income tax revenue
2 550
10 650 Dr
600
600 Cr
600
$
Deferred tax asset
Deferred tax liability
30 June 2012 Income tax expense Deferred tax asset
Nil
General journal of Spur Ltd Date
Particulars
Debit
Credit $
$
2 100
8 700
Income tax payable
10 200
Deferred tax liability
600
600
Deferred tax asset
600
Offset deferred tax liability
2 550
500
3 050
30 June 2012 Income tax expense Deferred tax asset
Taxation adjustments
Deferred tax liability
30 June 2013 Deferred tax asset Income tax payable Income tax expense Taxation adjustments
OR: General journal of Spur Ltd Date
Particulars
Debit
30 June 2012 Income tax expense
© 2010 Cengage Australia Pty Limited
Credit $
$
10 200
Chapter 5: Accounting for company income tax 137
Income tax payable
10 200
Increased income tax payable
8 700
Income tax revenue
8 700
Recognised temporary differences
600
Deferred tax liability
600
Recognised temporary differences
8 700
8 700
600
600
500
500
2 550
Income tax revenue
2 550
Recognised temporary differences
2 550
2 550
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
30 June 2013 Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Income tax revenue Income tax expense Offset income tax revenue
30 June 2012
30 June 2013 $
$
252 000
351 500
less Income tax expense
77 100
106 950
Profit (after income tax)
174 900
244 550
Profit (before income tax)
Question 5.19 $
Profit before income tax
82 000
Adjusted for permanent differences
© 2010 Cengage Australia Pty Limited
138 Company accounting and financial statements 5e solutions manual
Depreciation on buildings
8 000
Impairment loss ‐ Goodwill
2 000
Accounting profit
92 000
Adjusted for temporary differences
Depreciation of motor vehicles
10 000
Long service leave
8 000
Bad and doubtful debts
9 000
Annual leave
15 000
Profit before timing differences
134 000 Accounting Taxation records records $
Profit before temporary differences Adjusted for temporary differences Depreciation of motor vehicles Long service leave
$
$
134 000 134 000
15 000 5 000
Deferred tax liability
10 000 8 000
Bad and doubtful debts
9 000
Annual leave
15 000
Accounting profit
Temporary result
12 000 (4 000) Deferred tax asset reversal 3 000 6 000
Deferred tax asset
16 000 (1 000) Deferred tax asset reversal
92 000
88 000
Tax rate
x 30%
x 30%
Income tax expense
27 600
26 400
25 000
25 000
Taxable income
Income tax payable less Income tax expensed
Income tax expense adjustment 2 600 Income tax payable 1 400 adjustment Deferred tax asset = (–$4 000 + $6 000 – $1 000) = $1 000 x 0.30 = $300 Dr
Deferred tax liability = $5 000 x .30 = $1 500 Cr
General journal of Scott Ltd Date
Particulars
Debit
Credit $
$
2 600
300
Income tax liability
1 400
Deferred tax liability
1 500
30 June Income tax expense Deferred tax asset
Taxation adjustments
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 139
Deferred tax liability
300
300
Deferred tax asset Taxation adjustments
OR: $
Profit before income tax
$
82 000 Accounting profit
Adjusted for permanent differences
92 000
Adjusted for temporary differences
Depreciation on buildings
8 000 Depreciation of motor vehicles
(5 000)
Impairment loss ‐ Goodwill
2 000 Long service leave
(4 000)
Accounting profit
92 000 Bad and doubtful debts
6 000
x 30% Annual leave
(1 000)
Income tax expense
27 600
88 000
less Income tax expensed
25 000
x 30%
Income tax expense adjustment
2 600 Income tax payable
26 400
less Income tax expensed
25 000
Income tax payable adjustment
Deferred tax assets
$
Long service leave
(4 000)
Bad and doubtful debts Annual leave
Deferred tax liabilities Depreciation of motor vehicles
6 000 (1 000)
1 400
$
5 000 30%
Deferred tax liability
1 500
1 000
x 30%
Deferred tax asset
300 General journal of Scott Ltd
Date
Particulars
Debit
Credit $
$
1 400
Income tax payable
1 400
Increased income tax payable
300
Income tax revenue
300
Recognised temporary differences
1 500
1 500
30 June Income tax expense
Deferred tax asset
Income tax expense Deferred tax liability
© 2010 Cengage Australia Pty Limited
140 Company accounting and financial statements 5e solutions manual
Recognised temporary differences
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
300
300
300
300
30 June $
Profit (before income tax)
82 000
less Income tax expense
27 600
Profit (after income tax)
54 400
Question 5.20 $
Profit before income tax
200 000
Adjusted for permanent differences
Entertainment expenses
50 000
Impairment loss ‐ Goodwill
25 000
Dividends income
(100 000)
Accounting profit
175 000
Adjusted for temporary differences
Advertising
60 000
Depreciation on furniture
60 000
Depreciation on vehicles
50 000
Interest revenue
(30 000)
Profit before temporary differences
315 000
Accounting Taxation records records $
Profit before temporary differences Adjusted for temporary differences Interest revenue
Temporary result
$
$
315 000 315 000
20 000 10 000
Deferred tax liability
30 000
345 000 335 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 141
Advertising
60 000
70 000 10 000
Depreciation on furniture
60 000
45 000 (15 000)
Depreciation on vehicles
50 000
75 000 25 000
Accounting profit
175 000
Taxable income
Deferred tax liability Deferred tax liability reversal Deferred tax liability
145 000
Tax rate
x 30%
x 30%
Income tax expense
52 500
43 500
50 000
50 000
Income tax expense adjustment 2 500 Income tax payable (6 500) adjustment Deferred tax liability = ($10 000 + $10 000 – $15 000 + $25 000) =
Income tax payable less Income tax expensed
$30 000 x .30 = $9 000 Cr General journal of Jay Jay Ltd Date
Particulars
Debit
30 June Income tax expense Income tax liability
Credit $
$
2 500
6 500
9 000
Deferred tax liability Taxation adjustments
OR: $
Profit before income tax Adjusted for permanent differences
200 000 Accounting profit
$
175 000
Adjusted for temporary differences
Entertainment expenses
50 000
Advertising
Impairment loss ‐ Goodwill
25 000
Depreciation on furniture
Dividends income
(100 000)
Accounting profit
175 000
(10 000) 15 000
Depreciation on vehicles
(25 000)
Interest revenue
(10 000)
x 30%
145 000
Income tax expense
52 500
x 30%
less Income tax expensed
50 000 Income tax payable
43 500
Income tax expense adjustment
2 500 less Income tax expensed Income tax payable adjustment
© 2010 Cengage Australia Pty Limited
50 000 (6 500)
142 Company accounting and financial statements 5e solutions manual
Deferred tax liabilities
$
Advertising
10 000
Depreciation on furniture
(15 000)
Depreciation on vehicles
25 000
Interest revenue
10 000 30 000 x 30%
Deferred tax liability
9 000 General journal of Jay Jay Ltd
Date
Particulars
Debit
Credit $
$
6 500
6 500
9 000
Deferred tax liability
9 000
Recognised temporary differences
30 June Income tax payable Income tax expense Decreased income tax payable
Income tax expense
Question 5.21
$
Profit before income tax
366 000
Adjusted for permanent differences
Depreciation on buildings
15 000
Accounting profit
381 000
Adjusted for temporary differences
Depreciation on vehicles
10 000
Long service leave
5 000
Annual leave
4 000
Profit before temporary differences
400 000
Accounting Taxation records records $
$
© 2010 Cengage Australia Pty Limited
Temporary result $
Chapter 5: Accounting for company income tax 143
Profit before temporary differences
400 000 400 000
Adjusted for temporary differences
Depreciation on vehicles
10 000
7 500 (2 500)
Deferred tax liability
Long service leave
5 000
4 000
Annual leave
4 000
4 500 (500) Deferred tax asset reversal
Accounting profit
381 000
Taxable income Tax rate Income tax expense
Deferred tax asset
384 000
x 30%
x 30%
114 300
115 200
120 000 120 000
Income tax payable less Income tax expensed
1000
Income tax expense adjustment (5 700) Income tax payable (4 800) adjustment Deferred tax asset = ($1 000 – $500) = $500 x .30 = $150 Dr Deferred tax liability = – $2 500 x .30 = $750 Dr
General journal of Holt Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax liability
4 800
Deferred tax asset
150
Deferred tax liability
750
5 700
150
150
Income tax expense
Taxation adjustments
30 June Deferred tax liability
Deferred tax asset
Offset deferred tax asset
OR: $
Profit before income tax Adjusted for permanent differences
366 000 Accounting profit
$
381 000
Adjusted for temporary differences
Depreciation on buildings Accounting profit
15 000 381 000 x 30%
Depreciation on vehicles
2 500
Long service leave
1 000
Annual leave
(500)
Income tax expense
114 300
384 000
less Income tax expensed
120 000
x 30%
Income tax expense adjustment
(5 700) Income tax payable
© 2010 Cengage Australia Pty Limited
115 200
144 Company accounting and financial statements 5e solutions manual
less Income tax expensed
120 000
Income tax payable adjustment
Deferred tax assets
$ Deferred tax liabilities
Long service leave
1 000
Annual leave
(500)
(4 800)
$
Depreciation on vehicles
(2 500) x 30%
500 Deferred tax liability
(750)
x 30%
150
Deferred tax asset
General journal of Holt Ltd Date
Particulars
Debit
Credit $
$
4 800
4 800
150
Income tax revenue
150
Recognised temporary differences
750
Income tax expense
750
Recognised temporary differences
150
150
750
750
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Deferred tax liability
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
Question 5.22 $
Profit before income tax
500 000
Adjusted for permanent differences None
0
Accounting profit
500 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 145
Adjusted for temporary differences
Long service leave
7 000
Annual leave
12 000
Depreciation
8 000
Bad debts
200
Doubtful debts
500
Profit before timing differences
527 700
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
527 700
527 700
Adjusted for temporary differences
7 000
0
7,000
Deferred tax asset
Annual leave
12 000
11 000
1,000
Deferred tax asset
Depreciation
8 000
12 000
4,000 Deferred tax liability
Bad debts
200
200
0
Doubtful debts
500
0
500
Deferred tax asset
500 000
504 500
x 30%
x 30%
150 000
151 350
150 000
150 000
Long service leave
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 0 Income tax payable 1 350 adjustment Deferred tax asset = ($7 000 + $1 000 + $500) = $8 500 x .30 = $2 550 Dr
Deferred tax liability = $4 000 x .30 = $1 200 Cr General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
2 550
Income tax payable
1 350
Deferred tax liability
1 200
1 200
1 200
30 June 2012 Deferred tax asset
Taxation adjustments
Deferred tax liability Deferred tax asset
© 2010 Cengage Australia Pty Limited
146 Company accounting and financial statements 5e solutions manual
Offset deferred tax liability
$
Profit before income tax
600 000
Adjusted for permanent differences
None
0
Accounting profit
600 000
Adjusted for temporary differences
Long service leave
7 000
Annual leave
15 000
Depreciation
8 000
Bad debts
600
Doubtful debts
400
Profit before timing differences
631 000
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
631 000
631 000
Adjusted for temporary differences
Deferred tax asset reversal Deferred tax asset
Long service leave
7 000
Annual leave
15 000
Depreciation
8 000
8 000 (1 000) 13 000
2 000
0 (8 000) Deferred tax liability
Bad debts
600
600
0
Doubtful debts
400
0
400
Deferred tax asset
600 000
609 400
x 30%
x 30%
180 000
182 820
170 000
170 000
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 10 000 Income tax payable 12 820 adjustment Deferred tax asset = (–$1 000 + $2 000 + $400) = $1 400 x .30 = $420 Dr Deferred tax liability = –$8 000 x .30 = $2 400 Dr
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 147
General journal of Holdings Ltd Date
Particulars
Debit
30 June 2012 Income tax expense
Credit $
$
10 000
420
2400
12 820
420
420
Deferred tax asset Deferred tax liability Income tax payable Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
OR: $
Profit before income tax Adjusted for permanent differences
500 000 Accounting profit
$
500 000
Adjusted for temporary differences
None
0 Long service leave
Accounting profit
7 000
500 000 Annual leave
1 000
x 30% Depreciation
(4 000)
Income tax expense
150 000 Doubtful debts
less income tax expensed
150 000
504 500
0
x 30%
Income tax expense adjustment
Income tax payable
151 350
less income tax expensed
150 000
Income tax payable adjustment
Deferred tax assets
$
Long service leave
7 000
Annual leave
1 000
Doubtful debts
Deferred tax asset
500
500
Deferred tax liabilities Depreciation
1 350
$
4 000 x 30%
Deferred tax liability
1 200
8 500
x 30%
2 550
© 2010 Cengage Australia Pty Limited
148 Company accounting and financial statements 5e solutions manual
General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
1 350
1 350
2 550
Income tax revenue
2 550
Recognised temporary differences
1 200
Deferred tax liability
1 200
Recognised temporary differences
2 550
2 550
1 200
1 200
30 June 2013 Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
$
Profit before income tax Adjusted for permanent differences
600 000 Accounting profit
$
600 000
Adjusted for temporary differences
None
0 Long service leave
Accounting profit
(1 000)
Annual leave
2 000
600 000 Depreciation
8 000
x 30% Doubtful debts
400
Income tax expense
180 000
609 400
less Income tax expensed
170 000
x 30%
Income tax expense adjustment
(10 000) Income tax payable less Income tax expensed Income tax payable adjustment
Deferred tax assets Long service leave Annual leave
$ Deferred tax liabilities
(1 000)
Depreciation
2 000
© 2010 Cengage Australia Pty Limited
182 820 170 000 12 820
$
(8 000) x 30%
Chapter 5: Accounting for company income tax 149
Doubtful debts
400 Deferred tax liability
(2 400)
1 400
x 30% Deferred tax asset
420 General journal of Holdings Ltd
Date
Particulars
Debit
Credit $
$
12 820
12 820
420
Income tax revenue
420
Recognised temporary differences
2 400
Income tax expense
2 400
Recognised temporary differences
420
420
420
Deferred tax asset
420
Offset of deferred tax asset
30 June 2013 Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset
Deferred tax liability
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability
Question 5.23 Accounting records $
Sales
1 000 000
Taxation records
Temporary result $
$
800 000 200 000
Deferred tax liability
less Expenses
Purchases
400 000
400 000
0
Wages
160 000
160 000
0
Deferred tax liability reversal Deferred tax liability
Building depreciation
20 000
15 000 (5 000)
Vehicle depreciation
12 000
18 000
6 000
Annual leave
7 000
9 000 (2 000) Deferred tax asset reversal
Bad and doubtful debts
3 000
3 200
© 2010 Cengage Australia Pty Limited
(200) Deferred tax asset reversal
150 Company accounting and financial statements 5e solutions manual
Long service leave Accounting profit
9 000
1 000
8 000
Deferred tax asset
389 000
193 800
x 30%
x 30%
116 700
58 140
110 000
110 000
Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 6 700 Income tax payable (51 860) adjustment Deferred tax asset = (–$2 000 – $200 + $8 000) = $5 800 x .30 = $1 740
Deferred tax liability = (+ $200 000 – $5 000 + $6 000) = $201 000 x .30 = $60 300 General journal of Slate Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax expense
6 700
Income tax payable
51 860
Deferred tax asset
1 740
60 300
1 740
Deferred tax asset
1 740
Offset deferred tax liability
Deferred tax liability Taxation adjustments
Deferred tax liability
OR: General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
51 860
51 860
1 740
1 740
60 300
Deferred tax liability
60 300
Recognised temporary differences
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset Interest revenue Recognised temporary differences
Income tax expense
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 151
Income tax revenue
1 740
1 740
1 740
Deferred tax asset
1 740
Offset deferred tax liability
Income tax expense Offset income tax revenue
Deferred tax liability
Question 5.24 General journal of Jongo Ltd Date
Details
Debit
2010 Deferred tax asset 30 June Deferred tax liability Income tax revenue Taxation outcomes
48 000
Deferred tax liability Taxation outcomes
Deferred tax liability Taxation outcomes
6 000
Acc. profit $20 000 x .30
4 500
Tax. loss ($15 000) x .30
10 500 Depreciation diff. $35 000 x .30
12 000
Acc. profit $40 000 x .30
9 000 Reversal tax. loss ($30 000) x .30
3 000 Depreciation diff. $10 000 x .30
2013 Income tax expense 30 June Deferred tax liability
Tax. loss ($160 000) x .30
30 000 Acc. loss $100 000 x .30
2012 Income tax expense 30 June Deferred tax asset
Calculations $
18 000 Depreciation diff. $60 000 x .30
2011 Income tax expense 30 June Deferred tax asset
Credit $
82 500 3 000
Acc. profit $275 000 x .30 Reversal depreciation diff. ($10 000) x .30
Deferred tax asset
43 500 Reversal tax. loss ($145 000) x .30
Income tax payable
42 000 Taxable income (285 000 – $145 000) x .30
Taxation outcomes
Question 5.25 $
Loss before income tax
(25 000)
Adjusted for permanent differences
Impairment loss ‐ Goodwill
5 000
Depreciation on buildings
7 500
© 2010 Cengage Australia Pty Limited
152 Company accounting and financial statements 5e solutions manual
Entertainment expenses
10 000
Diminution in shares
20 000
Exempt dividends
(8 000)
Accounting profit
9 500
Adjusted for temporary differences
Annual leave
12 000
Bad and doubtful debts
4 000
Depreciation
100 000
Profit before timing differences
125 500
Accounting records
Profit before timing differences
Temporary result
$
$
$
125 500
125 500
12 000
10 000
2 000
Deferred tax asset
4 000
1 000
3 000
Deferred tax asset
less Expenses Annual leave Bad and doubtful debts Long service leave
Taxation records
100 000
Accounting profit
150 000 50 000 Deferred tax liability
9 500
(35 500)
30%
30%
2 850
(10 650)
less Income tax expensed
10 000
10 000
Income tax expense adjustment Income tax payable adjustment
(7 150)
(20 650)
Taxable income Tax rate Income tax expense Income tax payable
Deferred tax asset resulting from Temporary differences = ($3 000 + $2 000) = $5 000 x .30 = $1 500 Dr Taxation loss = ($35 200 x .30) = $10 650 Dr Deferred tax liability = $50 000 x .30 = $15 000 Cr Income tax paid during year of $10 000 is refundable. General journal of Blake Ltd Date
Particulars
Debit
30 June Income tax refundable
© 2010 Cengage Australia Pty Limited
Credit $
$
10 000
Chapter 5: Accounting for company income tax 153
Deferred tax asset
12 150
Income tax expense
7 150
Deferred tax liability
15 000
12 150
12 150
Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
OR: $
Loss before income tax Adjusted for permanent differences
$
(25 000) Accounting profit
9 500
Adjusted for temporary differences
Impairment loss ‐ Goodwill
5 000 Annual leave
2 000
Depreciation on buildings
7 500 Bad and doubtful debts
3 000
Entertainment expenses
10 000 Long service leave
Diminution in shares
20 000 Taxation Loss
Exempt dividends
(8 000)
Accounting profit
50 000 (35 500) 30%
9 500 Income tax payable
(10 650)
30% less Income tax expensed
Income tax expense
10 000
2 850 Income tax payable adjustment
less Income tax expensed
10 000
Income tax expense adjustment
(7 150)
(20 650)
Deferred tax asset resulting from Temporary differences = ($3 000 + $2 000) = $5 000 x .30 = $1500 Dr Taxation loss = ($35 200 x .30) = $10 560 Dr Deferred tax liability = $50 000 x .30 = $15 000 Cr Income tax paid during year of $10 000 is refundable. General journal of Blake Ltd Date
Particulars
Debit
30 June Income tax refundable Income tax payable Income tax paid during year refundable
Deferred tax asset Income tax revenue
© 2010 Cengage Australia Pty Limited
Credit $
$
10 000
10 000
10 650
10 650
154 Company accounting and financial statements 5e solutions manual
Recognised effect of $35 500 tax loss
15 000
Deferred tax liability
15 000
Recognised temporary differences
1 500
Income tax revenue
1 500
Recognised temporary differences
12 150
12 150
Income tax expense
Deferred tax asset
Income tax revenue Income tax expense Offset income tax revenue
© 2010 Cengage Australia Pty Limited
Accounting for company income
Question 5.1 $
Profit before income tax
650 000
Adjusted for permanent differences add
Entertainment allowance
50 000
Depreciation on buildings
100 000
Impairment loss ‐ Goodwill
10 000
Impairment loss ‐ Investments Accounting profit
440 000 1 250 000
Multiplied by tax rate
x 30%
Income tax expense
375 000
Question 5.2 The difference between profit (before tax) and accounting profit and taxable income are permanent differences. Profit (before tax) includes all revenues and expenses including those that are not assessable or not deductible under income tax law, whereas accounting profit and taxable income do not include permanent differences. There is no difference between accounting profit and taxable income, as both amounts do not include permanent differences.
Question 5.3 $
Profit before income tax
36 000
Adjusted for permanent differences less
Dividend income
72 000 (36 000)
add
Impairment loss ‐ Goodwill
50 000
Depreciation on buildings
200 000
© 2010 Cengage Australia Pty Limited
114 Company accounting and financial statements 5e solutions manual
214 000 less Investment allowance
90 000
Accounting profit
124 000
Multiplied by tax rate
x 30%
Income tax expense
37 200
Question 5.4 $
Profit before income tax
330 000
Adjusted for permanent differences
less
Dividend income
35 000
Gold mining profits
5 000 290 000
add
Impairment loss ‐ Goodwill
10 000
Depreciation on buildings
10 000
Entertainment expenses
25 000
Accounting profit
335 000
Multiplied by tax rate
x 30%
Income tax expense
100 500
less Income tax expensed
96 500
Income tax underprovided
4 000
The solution assumes that the company is in a position to finalise its taxation position at 30 June 2012.
General journal of J & K Trading Ltd Date
Particulars
Debit
30 Jun 2012 Income tax expense Income tax payable Adjustment for underprovided income tax
© 2010 Cengage Australia Pty Limited
Credit $
$
4 000
4 000
Chapter 5: Accounting for company income tax 115
Date
General ledger of J & K Trading Ltd Debit $ Profit and loss
Particulars
30 Jun 2012 Service income
Credit
Balance $
$
380 000 380 000 Cr
Wages
40 000
340 000 Cr
Impairment loss ‐ Goodwill
10 000
330 000 Cr
Depreciation on buildings
15 000
Dividends income
315 000 Cr
35 000 350 000 Cr
25 000
325 000 Cr
Gold mining profits
5 000 330 000 Cr
Income tax expense Income tax expense (adjustment)
96 500
Entertainment expenses
4 000
Profit and loss
229 500
233 500 Cr
229 000 Cr
Nil
J & K Trading Ltd Statement of financial position as at 30 June 2012 (Extract)
$
Current liabilities Income tax payable
24 000
Question 5.5 Debtors
$
Debtors balance at 1 July
60 000
Add sales
400 000
460 000
less receipts from debtors
(300 000)
160 000
less Bad debts
(30 000)
Debtors balance at 30 June
130 000
less Allowance for doubtful debts @ 5%
6 500
Carrying cost of debtors at 30 June
123 500
Income method: Accounting records
Taxation records
Temporary Temporary difference amount
© 2010 Cengage Australia Pty Limited
116 Company accounting and financial statements 5e solutions manual
Bad and doubtful debts
$36 500
$30 000
$6 500 Deferred tax asset
Statement of financial position method: $
Carrying cost of debtors at 30 June
123 500
less Future assessable amount
Nil
plus Future deductible amount (doubtful debts)
6 500
equals Tax base of asset
130 000
less Carrying cost of asset
(123 500)
Deferred tax asset temporary difference
6 500
Question 5.6 Income method:
Accounting Taxation records Temporary amount records
Temporary difference
Long service leave
$30 000
$20 000
$10 000 Deferred tax asset
Annual leave
$45 000
$40 000
$5 000 Deferred tax asset
Statement of financial position method: Long Service Leave $
Annual Leave
Leave payable balance at 1 July
80 000
5 000
Add amount expensed during year
30 000
45 000
110 000
50 000
less amount paid during year
(20 000)
(40 000)
Carrying cost of leave at 30 June
90 000
10 000
plus Future assessable amount (amount paid)
20 000
40 000
(30 000)
(45 000)
80 000
5 000
less Carrying cost of liability
(90 000)
(10 000)
Deferred tax asset temporary difference
(10 000)
(5 000)
less Future deductible amount (amount expensed) equals Tax base of liability
© 2010 Cengage Australia Pty Limited
$
Chapter 5: Accounting for company income tax 117
Question 5.7 Income statement method: Accounting records $
Taxation records $
Deferred tax asset Temporary difference $
Bad and doubtful debts
15 000
10 000
5 000
Annual leave
35 000
20 000
15 000
Statement of financial position method: Debtors $
Debtors balance at 30 June
60 000
less Allowance for doubtful debts
10 000
Carrying cost of debtors at 30 June
50 000
less Future assessable amount
Nil
plus Future deductible amount (doubtful debts)
10 000
equals Tax base of asset
60 000
less Carrying cost of asset
(50 000)
Deferred tax asset temporary difference
10 000
Annual Leave $
Annual leave balance at 1 July
25 000
Add amount expensed during year
35 000
60 000
less amount paid during year
(20 000)
Carrying cost of annual leave at 30 June
40 000
plus Future assessable amount (amount paid)
20 000
less Future deductible amount (amount expensed)
(35 000)
equals Tax base of liability
25 000
Carrying cost of liability
40 000
Less tax base of liability
25 000
Deferred tax asset temporary difference
15 000
© 2010 Cengage Australia Pty Limited
118 Company accounting and financial statements 5e solutions manual
Question 5.8 $
Profit before income tax
720 000
Adjusted for permanent differences
Entertainment expenses
5 000
Impairment loss ‐ Goodwill
2 500
Accounting profit
727 500
Adjusted for temporary differences
Annual and long service leave
4 200
Bad and doubtful debts
1 500
Profit before timing differences
733 200 Accounting records
Taxation records
Temporary result
$
$
$
733 200
733 200
Annual and long service leave
4 200
0
4 200
Bad and doubtful debts
1 500
500
1 000
727 500
Deferred tax asset Deferred tax asset
732 700
x 30%
x 30%
218 250
219 810
210 000
210 000
8 250
9 810
Profit before temporary differences less temporary differences
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax asset = ($4 200 + $1 000 = $5 200 x .30 = $1 560) General journal of Bongo Ltd Date
Particulars
Debit $
Credit $
30 June Income tax expense Deferred tax asset
© 2010 Cengage Australia Pty Limited
8 250
1 560
Chapter 5: Accounting for company income tax 119
Income tax payable Income tax adjustments
9 810
OR: $
Profit before income tax
720 000 Accounting profit
Adjusted for permanent differences
$
727 500
Adjusted for temporary differences
Entertainment expenses
5 000
Annual and long service leave
4 200
Impairment loss ‐ Goodwill
2 500
Bad and doubtful debts
1 000
Accounting profit
727 500 Taxable income
732 700
30%
30%
Income tax expense
218 250 Income tax payable
219 810
less Income tax expensed
210 000 less Income tax expensed
210 000
Income tax expense adjustment
8 250 Income tax payable adjustment
Deferred tax assets
9 810
$
Annual and long service leave
4 200
Bad and doubtful debts
1 000 5 200 x 30%
Deferred tax asset
1 560
General journal of Bongo Ltd Date
Particulars
Debit
30 June Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset Income tax payable Recognised affect of temporary differences
Credit $
$
8 250
8 250
1 560
1 560
Question 5.9 $
Profit before income tax
550 000
Adjusted for permanent differences Impairment loss ‐ Investments © 2010 Cengage Australia Pty Limited
150 000
120 Company accounting and financial statements 5e solutions manual
Exempt dividends income
(30 000)
Accounting profit
670 000
Adjusted for temporary differences
Annual leave
20 000
Long service leave
14 900
Bad and doubtful debts
5 100
Profit before timing differences
710 000 Accounting records
Taxation records
Temporary result
$
$
$
710 000
710 000
Annual leave
20 000
15 000
Long service leave
14 900
Profit before temporary differences less temporary differences
Bad and doubtful debts Accounting profit
2 600
670 000
688 700
x 30%
x 30%
201 000
206 610
210 000
210 000
Tax rate Income tax expense Income tax payable less Income tax expensed
3 700 11 200 Deferred tax asset
5 100
Taxable income
5 000 Deferred tax asset 2 500 Deferred tax asset
Income tax expense adjustment (9 000) Income tax payable (3 390) adjustment Deferred tax asset = ($5 000 + $11 200 + $2 500 = $18 700 x .30 = $5 610) General journal of Pine Ltd Date
Particulars
Debit
30 June Income tax expense
Credit $
$
111 000
5 610
16 61
Deferred tax asset Income tax liability Taxation adjustments
OR: $
Profit before income tax
550 000
Accounting profit
© 2010 Cengage Australia Pty Limited
$
670 000
Chapter 5: Accounting for company income tax 121
Adjusted for permanent differences
Impairment loss ‐ Investments 150 000 Exempt dividends income Accounting profit
Adjusted for temporary differences Annual leave
(30 000)
Long service leave
670 000
Bad and doubtful debts
x 30%
Taxable income
5 000 11 200 2 500 688 700
Income tax expense
201 000
x 30%
less Income tax expensed
190 000
Income tax payable
206 610
Income tax expense adjustment
111 000
less Income tax expensed
190 000
Income tax payable adjustment
16 610
Deferred tax assets $
Annual leave
5 000
Long service leave
11 200
Bad and doubtful debts
2 500 18 700 x 30%
Deferred tax asset
5 610
Question 5.10 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Depreciation ‐ equipment
25 000
37 500
12 500
Depreciation ‐ machinery
80 000
120 000
40 000
Equipment $
Equipment balance at 30 June
250 000
less Accumulated depreciation at 10% p.a.
(25 000)
Carrying cost of equipment at 30 June
225 000
less Future assessable amount
(225 000)
plus Future deductible amount
212 500
equals Tax base of asset
212 500
Carrying cost of asset
225 000
less Tax base of asset
(215 500)
© 2010 Cengage Australia Pty Limited
122 Company accounting and financial statements 5e solutions manual
Deferred tax liability temporary difference
12 500
Machinery $
Machinery balance at 30 June
400 000
less Accumulated depreciation at 20% p.a.
(80 000)
Carrying cost of equipment at 30 June
320 000
less Future assessable amount
(320 000)
plus Future deductible amount
280 000
equals Tax base of asset
280 000
Carrying cost of asset
320 000
less Tax base of asset
(280 000)
Deferred tax liability temporary difference
40 000
Question 5.11 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Revenues Interest
530 000
500 000
30 000
70 000
85 000
15 000
Expenses Advertising
Statement of financial position method: Carrying cost of accrued revenue (sales) less Future assessable amount
30 000 (30 000)
plus Future deductible amount
Nil
equals
Nil
Carrying cost of asset
30 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
30 000
Carrying cost of prepaid expense (advertising)
© 2010 Cengage Australia Pty Limited
15 000
Chapter 5: Accounting for company income tax 123
less Future assessable amount
(15 000)
plus Future deductible amount
Nil
equals Tax base of asset
Nil
Carrying cost of asset
15 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
15 000
Question 5.12 Income statement method: Accounting records $
Taxation records $
Deferred tax liability Temporary difference $
Expenses Depreciation Wages
50 000
75 000
25 000
250 000
270 000
20 000
Statement of financial position method: Equipment $
Equipment balance as at 30 June
500 000
less Accumulated depreciation
(50 000)
Carrying cost of equipment at 30 June
450 000
less Future assessable amount
(450 000)
plus Future deductible amount
425 000
equals Tax base of asset
425 000
Carrying cost of asset
450 000
less Tax base of asset
(425 000)
Deferred tax liability temporary difference
25 000
Wages Carrying cost of prepaid expense (wages) less Future assessable amount plus Future deductible amount
© 2010 Cengage Australia Pty Limited
20 000 (20 000) Nil
124 Company accounting and financial statements 5e solutions manual
equals Tax base of asset
Nil
Carrying cost of asset
20 000
less Tax base of asset
Nil
Deferred tax liability temporary difference
20 000
Question 5.13 Accounting records
Revenues
Taxation records
Temporary result
$
$
$
750 000
700 000
50 000
Deferred tax liability
Commission
25 000
20 000
5 000
Deferred tax liability
Rent revenue
30 000
30 000
0
805 000
750 000
60 000
60 000
0
Depreciation of vehicles
120 000
180 000
60 000
Deferred tax liability
Wages
160 000
175 000
15 000
Deferred tax liability
465 000
335 000
Sales
less expenses Advertising
Accounting profit Taxable income
Question 5.14 Profit before income tax
90 000
Adjusted for permanent differences
Depreciation on buildings
5 000
Accounting profit
95 000
Adjusted for temporary differences
Depreciation on computers
15 000
Interest received
(6 000)
Profit before timing differences
104 000 Accounting records
Taxation records
© 2010 Cengage Australia Pty Limited
Temporary result
Chapter 5: Accounting for company income tax 125
$
$
$
Profit before temporary differences
104 000
104 000
Adjusted for temporary differences
Interest received
6 000 110 000
Depreciation on computers
15 000
Accounting profit
Income tax expense
Income tax expense adjustment
22 500 7 500 Deferred tax liability
84 500
x 30%
x 30%
28 500
25 350
26 000
26 000
2 500
(650)
Income tax payable less Income tax expensed
107 000
95 000
Taxable income Tax rate
3 000 3 000 Deferred tax liability
Income tax payable adjustment
General journal of Banksia Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax expense
2 500
Income tax payable
650
3 150
Deferred tax liability Taxation adjustments
OR: $
Profit before income tax
90 000 Accounting profit
Adjusted for permanent differences Depreciation on buildings
$
95 000
Adjusted for temporary differences 5 000 Depreciation on computers
Accounting profit
(7 500)
95 000 Interest received
(3 000)
x 30% Taxable income
84 500
Income tax expense
28 500
x 30%
less Income tax expensed
26 000 Income tax payable
25 350
Income tax expense adjustment
2 500 less Income tax expensed
© 2010 Cengage Australia Pty Limited
26 000
126 Company accounting and financial statements 5e solutions manual
Income tax payable adjustment
(650)
Deferred tax liabilities
$
Depreciation on computers
7 500
Interest received
3 000
10 500
x 30%
Deferred tax liability
3 150
Question 5.15 $
Profit before income tax
126 000
Adjusted for permanent differences
Entertainment expenses
14 000
Establishment costs
2 000
Dividends received
(5 200)
Accounting profit
136 800
Adjusted for temporary differences
Commission received
(33 000)
Depreciation on lathes
50 000
Promotion expenses
120 000
Profit before timing differences
273 800 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
273 800
273 800
Adjusted for temporary differences
33 000
21 000
306 800
294 800
50 000
100 000
50 000 Deferred tax liability
120 000
122 000
2 000 Deferred tax liability
Commission received
Depreciation on lathes Promotion expenses
© 2010 Cengage Australia Pty Limited
12 000 Deferred tax liability
Chapter 5: Accounting for company income tax 127
Accounting profit
136 800
72 800
Tax rate
x 30%
x 30%
Income tax expense
41 040
21 840
42 000
42 000
(960)
(20 160)
Taxable income
Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax liability = ($12 000 + $50 000 + $2 000) = $64 000 x .30 = $19 200 General journal of Erica Ltd Date
Particulars
Debit
Credit $
$
20 160
Income tax expense
960
Deferred tax liability
19 200
30 June Income tax payable
Taxation adjustments
OR: $
Profit before income tax
126 000 Accounting profit
Adjusted for permanent differences Entertainment expenses
$
136 800
Adjusted for temporary differences 14 000
Commission received
(12 000)
Establishment costs
2 000
Depreciation on lathes
(50 000)
Dividends received
(5 200)
Accounting profit
Promotion expenses
(2 000)
136 800
72 800
x 30%
x 30%
Income tax expense
41 040 Income tax payable
21 840
less Income tax expensed
42 000 less Income tax expensed
42 000
Income tax expense adjustment
(960) Income tax payable adjustment
(20 160)
Deferred tax liabilities
$
Commission received
12 000
Depreciation on lathes
50 000
Promotion expenses
2 000
© 2010 Cengage Australia Pty Limited
128 Company accounting and financial statements 5e solutions manual
64 000
x 30%
Deferred tax liability
25 600
Question 5.16 $
Profit before income tax
400 000
Adjusted for permanent differences
Impairment loss ‐ goodwill
20 000
Exempt income
(30 000)
Accounting profit
390 000
Adjusted for temporary differences
Interest income
(30 000)
Repairs and maintenance
110 000
Depreciation
100 000
Bad and doubtful debts
50 000
Long service leave
5 000
Profit before timing differences
625 000 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
625 000
625 000
Adjusted for temporary differences
120 000 90 000
Deferred tax asset
Interest income
30 000
655 000
745 000
Repairs and maintenance
110 000
65 000 45 000
Deferred tax asset
Depreciation
100 000
190 000 90 000
Deferred tax liability
50 000
25 000 25 000
Deferred tax asset
Bad and doubtful debts Long service leave Accounting profit Taxable income Tax rate
5 000
0
5 000
Deferred tax asset
390 000
465 000
x 30%
x 30%
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 129
Income tax expense
117 000
139 500
115 000
115 000
2 000
24 500
Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
Deferred tax asset = ($90 000 + $45 000 + $25 000 + $5 000) x .30 = $49 500 Deferred tax liability = $90 000 x .30 = $27 000 General journal of AZ Ltd Date
Particulars
Debit
Credit $
$
2 000
49 500
Income tax liability
24 500
Deferred tax liability
27 000
27 000
Deferred tax asset
27 000
Offset deferred tax liability
30 June Income tax expense Deferred tax asset
Taxation adjustments
Deferred tax liability
OR: $
Profit before income tax
400 000 Accounting profit
Adjusted for permanent differences Goodwill amortisation Accounting profit
390 000
Adjusted for temporary differences 20 000
Exempt income
$
Interest income
90 000
(30 000)
Repairs and maintenance
45 000
390 000
Depreciation
x 30%
Bad and doubtful debts
25 000
Income tax expense
117 000
less Income tax expensed
115 000
465 000
2 000
x 30%
Income tax expense adjustment
Long service leave
(90 000)
Income tax payable
139 500
less Income tax expensed
115 000
Income tax payable adjustment Deferred tax assets Interest income
5 000
$ Deferred tax liabilities
90 000
Depreciation
© 2010 Cengage Australia Pty Limited
24 500 $
90 000
130 Company accounting and financial statements 5e solutions manual
Repairs and maintenance
45 000
Bad and doubtful debts
25 000 Deferred tax liability
Long service leave
x 30% 27 000
5 000 165 000 x 30%
Deferred tax asset
49 500 General journal of AZ Ltd
Date
Particulars
Debit
Credit $
$
24 500
Income tax payable
24 500
Increased income tax payable
49 500
49 500
27 000
27 000
49 500
49 500
27 000
27 000
30 June Income tax expense
Deferred tax asset Income tax revenue Adjustments to income tax
Income tax expense Deferred tax liability Adjustments to income tax
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
Question 5.17 $
Profit before income tax
280 000
Adjusted for permanent differences Depreciation on buildings Accounting profit
5 000 285 000
Adjusted for temporary differences
Depreciation of furniture
20 000
Doubtful and bad debts
10 000
Annual leave
15 000
Long service leave
21 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 131
Profit before timing differences
351 000
Accounting records
Taxation records
Temporary result
$
$
$
351 000
351 000
Depreciation of furniture
20 000
40 000
20 000 Deferred tax liability
Long service leave
15 000
6 000 Deferred tax asset
Doubtful and bad debts
21 000 10 000
6 000
4 000 Deferred tax asset
Annual leave
15 000
10 000
5000 Deferred tax asset
285 000
280 000
Tax rate
x 30%
x 30%
Income tax expense
85 500
84 000
85 500
85 500
Income tax expense adjustment Income tax payable (1 500) adjustment Deferred tax asset = ($5 000 + $4 000 + $6 000) = $15 000 x .30 = $4 500
Profit before temporary differences Adjusted for temporary differences
Accounting profit Taxable income
Income tax payable less Income tax expensed
Deferred tax liability = $20 000 x .30 = $6 000 General journal of Able Ltd Date
Particulars
Debit
30 June Income tax payable Deferred tax asset Deferred tax liability Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
Credit $
$
1 500
4 500
6 000
4 500
4 500
OR: $
Profit before income tax
280 000 Accounting profit
Adjusted for permanent differences
Adjusted for temporary differences
© 2010 Cengage Australia Pty Limited
$
285 000
132 Company accounting and financial statements 5e solutions manual
Depreciation on buildings
5 000
Accounting profit
285 000
Depreciation of furniture
(20 000)
Annual leave
5 000
x 30%
Doubtful and bad debts
4 000
Income tax expense
85 500
Long service leave
6 000
less Income tax expensed
85 500
280 000
0
x 30%
Income tax expense adjustment
Deferred tax assets
$
Annual leave
5 000
Doubtful and bad debts
4 000
Long service leave
6 000
Deferred tax asset
Income tax payable
84 000
less Income tax expensed
85 500
Income tax payable adjustment
(1 500)
Deferred tax liabilities
$
Depreciation – furniture
20 000 x 30%
Deferred tax liability
6 000
15 000
x 30%
4 500
General journal of Able Ltd Date
Particulars
Debit
Credit $
$
1 500
1 500
4 500
Income tax revenue
4 500
Recognised temporary differences
6 000
Deferred tax liability
6 000
Recognised temporary differences
4 500
4 500
4 500
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 133
Deferred tax asset Offset of deferred tax liability
4 500
Question 5.18 Year ended 30 June 2012 $
Profit before income tax
252 000
Adjusted for permanent differences
Impairment loss ‐ Goodwill
5 000
Accounting profit
257 000
Adjusted for temporary differences
Bad and doubtful debts
9 000
Annual leave
25 000
Depreciation
4 000
Annual leave
5 000
Profit before timing differences
300 000
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
300 000
300 000
Adjusted for temporary differences
9 000
6 000
3 000 Deferred tax asset
25 000
0
25 000 Deferred tax asset
Depreciation
4 000
6 000
2 000
Annual leave
5 000
4 000
1 000 Deferred tax asset
257 000
284 000
Tax rate
x 30%
x 30%
Income tax expense
77 100
85 200
75 000
75 000
2 100
Bad and doubtful debts Long service leave
Accounting profit Taxable income
Income tax payable less Income tax expensed Income tax expense adjustment
© 2010 Cengage Australia Pty Limited
Deferred tax liability
134 Company accounting and financial statements 5e solutions manual
Income tax payable adjustment
10 200
OR: $
Profit before income tax Adjusted for permanent differences
252 000 Accounting profit
$
257 000
Adjusted for temporary differences
Impairment loss ‐ Goodwill
5 000
Accounting profit
257 000 Bad and doubtful debts
3 000
x 30% Long service leave
25 000
Income tax expense
77 100 Depreciation
(2 000)
less Income tax expensed
75 000 Annual leave
1 000
Income tax expense adjustment
Deferred tax assets
2 100
284 000
x 30%
$
Long service leave
25 000
Income tax payable
85 200
less Income tax expensed
75 000
Income tax payable adjustment
10 200
Deferred tax liabilities Depreciation
Bad and doubtful debts
3 000
Annual leave
1 000 Deferred tax liability
$
2 000 x 30% 600
29 000 x 30% Deferred tax asset
8 700
Year ended 30 June 2013 $
Profit before income tax
351 500
Adjusted for permanent differences Impairment loss ‐ Goodwill Accounting profit
5 000 356 500
Adjusted for temporary differences Bad and doubtful debts Annual leave
7 500 25 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 135
Depreciation
4 000
Annual leave
7 000
Profit before timing differences
400 000 Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
400 000
400 000
Adjusted for temporary differences
Bad and doubtful debts Long service leave
7 500
4 500 3 000 Deferred tax asset
25 000
20 000 5 000 Deferred tax asset
Depreciation
4 000
4 000
Annual leave
7 000
6 500
356 500
365 000
x 30%
x 30%
106 950
109 500
110 000
110 000
(3 050)
(500)
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed Income tax expense adjustment Income tax payable adjustment
0
500 Deferred tax asset
Deferred tax asset = ($3 000 + $5 000 + $500) = $8 500 x .30 = $2 550
OR: $
Profit before income tax
$
351 500 Accounting profit
Adjusted for permanent differences Impairment loss ‐ Goodwill Accounting profit
Adjusted for temporary differences 5 000 356 500
356 500
Bad and doubtful debts
3 000
Long service leave
5 000
x 30%
Depreciation
0
Income tax expense
106 950
Annual leave
500
less Income tax expensed
110 000
365 000
(3 050)
x 30%
Income tax expense adjustment
Income tax payable
© 2010 Cengage Australia Pty Limited
109 500
136 Company accounting and financial statements 5e solutions manual
less Income tax expensed
110 000
Income tax payable adjustment
(500)
Deferred tax asset = ($3 000 + $5 000 + $500) = $8 500 x .30 = $2 550
General ledger of Spur Ltd Date
Particulars
Debit
Credit
Balance
$
$
30 June 2012 Income tax revenue
8 700
8 700 Dr
Deferred tax liability
600
8 100 Dr
30 June 2013 Income tax revenue
2 550
10 650 Dr
600
600 Cr
600
$
Deferred tax asset
Deferred tax liability
30 June 2012 Income tax expense Deferred tax asset
Nil
General journal of Spur Ltd Date
Particulars
Debit
Credit $
$
2 100
8 700
Income tax payable
10 200
Deferred tax liability
600
600
Deferred tax asset
600
Offset deferred tax liability
2 550
500
3 050
30 June 2012 Income tax expense Deferred tax asset
Taxation adjustments
Deferred tax liability
30 June 2013 Deferred tax asset Income tax payable Income tax expense Taxation adjustments
OR: General journal of Spur Ltd Date
Particulars
Debit
30 June 2012 Income tax expense
© 2010 Cengage Australia Pty Limited
Credit $
$
10 200
Chapter 5: Accounting for company income tax 137
Income tax payable
10 200
Increased income tax payable
8 700
Income tax revenue
8 700
Recognised temporary differences
600
Deferred tax liability
600
Recognised temporary differences
8 700
8 700
600
600
500
500
2 550
Income tax revenue
2 550
Recognised temporary differences
2 550
2 550
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
30 June 2013 Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Income tax revenue Income tax expense Offset income tax revenue
30 June 2012
30 June 2013 $
$
252 000
351 500
less Income tax expense
77 100
106 950
Profit (after income tax)
174 900
244 550
Profit (before income tax)
Question 5.19 $
Profit before income tax
82 000
Adjusted for permanent differences
© 2010 Cengage Australia Pty Limited
138 Company accounting and financial statements 5e solutions manual
Depreciation on buildings
8 000
Impairment loss ‐ Goodwill
2 000
Accounting profit
92 000
Adjusted for temporary differences
Depreciation of motor vehicles
10 000
Long service leave
8 000
Bad and doubtful debts
9 000
Annual leave
15 000
Profit before timing differences
134 000 Accounting Taxation records records $
Profit before temporary differences Adjusted for temporary differences Depreciation of motor vehicles Long service leave
$
$
134 000 134 000
15 000 5 000
Deferred tax liability
10 000 8 000
Bad and doubtful debts
9 000
Annual leave
15 000
Accounting profit
Temporary result
12 000 (4 000) Deferred tax asset reversal 3 000 6 000
Deferred tax asset
16 000 (1 000) Deferred tax asset reversal
92 000
88 000
Tax rate
x 30%
x 30%
Income tax expense
27 600
26 400
25 000
25 000
Taxable income
Income tax payable less Income tax expensed
Income tax expense adjustment 2 600 Income tax payable 1 400 adjustment Deferred tax asset = (–$4 000 + $6 000 – $1 000) = $1 000 x 0.30 = $300 Dr
Deferred tax liability = $5 000 x .30 = $1 500 Cr
General journal of Scott Ltd Date
Particulars
Debit
Credit $
$
2 600
300
Income tax liability
1 400
Deferred tax liability
1 500
30 June Income tax expense Deferred tax asset
Taxation adjustments
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 139
Deferred tax liability
300
300
Deferred tax asset Taxation adjustments
OR: $
Profit before income tax
$
82 000 Accounting profit
Adjusted for permanent differences
92 000
Adjusted for temporary differences
Depreciation on buildings
8 000 Depreciation of motor vehicles
(5 000)
Impairment loss ‐ Goodwill
2 000 Long service leave
(4 000)
Accounting profit
92 000 Bad and doubtful debts
6 000
x 30% Annual leave
(1 000)
Income tax expense
27 600
88 000
less Income tax expensed
25 000
x 30%
Income tax expense adjustment
2 600 Income tax payable
26 400
less Income tax expensed
25 000
Income tax payable adjustment
Deferred tax assets
$
Long service leave
(4 000)
Bad and doubtful debts Annual leave
Deferred tax liabilities Depreciation of motor vehicles
6 000 (1 000)
1 400
$
5 000 30%
Deferred tax liability
1 500
1 000
x 30%
Deferred tax asset
300 General journal of Scott Ltd
Date
Particulars
Debit
Credit $
$
1 400
Income tax payable
1 400
Increased income tax payable
300
Income tax revenue
300
Recognised temporary differences
1 500
1 500
30 June Income tax expense
Deferred tax asset
Income tax expense Deferred tax liability
© 2010 Cengage Australia Pty Limited
140 Company accounting and financial statements 5e solutions manual
Recognised temporary differences
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
300
300
300
300
30 June $
Profit (before income tax)
82 000
less Income tax expense
27 600
Profit (after income tax)
54 400
Question 5.20 $
Profit before income tax
200 000
Adjusted for permanent differences
Entertainment expenses
50 000
Impairment loss ‐ Goodwill
25 000
Dividends income
(100 000)
Accounting profit
175 000
Adjusted for temporary differences
Advertising
60 000
Depreciation on furniture
60 000
Depreciation on vehicles
50 000
Interest revenue
(30 000)
Profit before temporary differences
315 000
Accounting Taxation records records $
Profit before temporary differences Adjusted for temporary differences Interest revenue
Temporary result
$
$
315 000 315 000
20 000 10 000
Deferred tax liability
30 000
345 000 335 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 141
Advertising
60 000
70 000 10 000
Depreciation on furniture
60 000
45 000 (15 000)
Depreciation on vehicles
50 000
75 000 25 000
Accounting profit
175 000
Taxable income
Deferred tax liability Deferred tax liability reversal Deferred tax liability
145 000
Tax rate
x 30%
x 30%
Income tax expense
52 500
43 500
50 000
50 000
Income tax expense adjustment 2 500 Income tax payable (6 500) adjustment Deferred tax liability = ($10 000 + $10 000 – $15 000 + $25 000) =
Income tax payable less Income tax expensed
$30 000 x .30 = $9 000 Cr General journal of Jay Jay Ltd Date
Particulars
Debit
30 June Income tax expense Income tax liability
Credit $
$
2 500
6 500
9 000
Deferred tax liability Taxation adjustments
OR: $
Profit before income tax Adjusted for permanent differences
200 000 Accounting profit
$
175 000
Adjusted for temporary differences
Entertainment expenses
50 000
Advertising
Impairment loss ‐ Goodwill
25 000
Depreciation on furniture
Dividends income
(100 000)
Accounting profit
175 000
(10 000) 15 000
Depreciation on vehicles
(25 000)
Interest revenue
(10 000)
x 30%
145 000
Income tax expense
52 500
x 30%
less Income tax expensed
50 000 Income tax payable
43 500
Income tax expense adjustment
2 500 less Income tax expensed Income tax payable adjustment
© 2010 Cengage Australia Pty Limited
50 000 (6 500)
142 Company accounting and financial statements 5e solutions manual
Deferred tax liabilities
$
Advertising
10 000
Depreciation on furniture
(15 000)
Depreciation on vehicles
25 000
Interest revenue
10 000 30 000 x 30%
Deferred tax liability
9 000 General journal of Jay Jay Ltd
Date
Particulars
Debit
Credit $
$
6 500
6 500
9 000
Deferred tax liability
9 000
Recognised temporary differences
30 June Income tax payable Income tax expense Decreased income tax payable
Income tax expense
Question 5.21
$
Profit before income tax
366 000
Adjusted for permanent differences
Depreciation on buildings
15 000
Accounting profit
381 000
Adjusted for temporary differences
Depreciation on vehicles
10 000
Long service leave
5 000
Annual leave
4 000
Profit before temporary differences
400 000
Accounting Taxation records records $
$
© 2010 Cengage Australia Pty Limited
Temporary result $
Chapter 5: Accounting for company income tax 143
Profit before temporary differences
400 000 400 000
Adjusted for temporary differences
Depreciation on vehicles
10 000
7 500 (2 500)
Deferred tax liability
Long service leave
5 000
4 000
Annual leave
4 000
4 500 (500) Deferred tax asset reversal
Accounting profit
381 000
Taxable income Tax rate Income tax expense
Deferred tax asset
384 000
x 30%
x 30%
114 300
115 200
120 000 120 000
Income tax payable less Income tax expensed
1000
Income tax expense adjustment (5 700) Income tax payable (4 800) adjustment Deferred tax asset = ($1 000 – $500) = $500 x .30 = $150 Dr Deferred tax liability = – $2 500 x .30 = $750 Dr
General journal of Holt Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax liability
4 800
Deferred tax asset
150
Deferred tax liability
750
5 700
150
150
Income tax expense
Taxation adjustments
30 June Deferred tax liability
Deferred tax asset
Offset deferred tax asset
OR: $
Profit before income tax Adjusted for permanent differences
366 000 Accounting profit
$
381 000
Adjusted for temporary differences
Depreciation on buildings Accounting profit
15 000 381 000 x 30%
Depreciation on vehicles
2 500
Long service leave
1 000
Annual leave
(500)
Income tax expense
114 300
384 000
less Income tax expensed
120 000
x 30%
Income tax expense adjustment
(5 700) Income tax payable
© 2010 Cengage Australia Pty Limited
115 200
144 Company accounting and financial statements 5e solutions manual
less Income tax expensed
120 000
Income tax payable adjustment
Deferred tax assets
$ Deferred tax liabilities
Long service leave
1 000
Annual leave
(500)
(4 800)
$
Depreciation on vehicles
(2 500) x 30%
500 Deferred tax liability
(750)
x 30%
150
Deferred tax asset
General journal of Holt Ltd Date
Particulars
Debit
Credit $
$
4 800
4 800
150
Income tax revenue
150
Recognised temporary differences
750
Income tax expense
750
Recognised temporary differences
150
150
750
750
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset
Deferred tax liability
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
Question 5.22 $
Profit before income tax
500 000
Adjusted for permanent differences None
0
Accounting profit
500 000
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 145
Adjusted for temporary differences
Long service leave
7 000
Annual leave
12 000
Depreciation
8 000
Bad debts
200
Doubtful debts
500
Profit before timing differences
527 700
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
527 700
527 700
Adjusted for temporary differences
7 000
0
7,000
Deferred tax asset
Annual leave
12 000
11 000
1,000
Deferred tax asset
Depreciation
8 000
12 000
4,000 Deferred tax liability
Bad debts
200
200
0
Doubtful debts
500
0
500
Deferred tax asset
500 000
504 500
x 30%
x 30%
150 000
151 350
150 000
150 000
Long service leave
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 0 Income tax payable 1 350 adjustment Deferred tax asset = ($7 000 + $1 000 + $500) = $8 500 x .30 = $2 550 Dr
Deferred tax liability = $4 000 x .30 = $1 200 Cr General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
2 550
Income tax payable
1 350
Deferred tax liability
1 200
1 200
1 200
30 June 2012 Deferred tax asset
Taxation adjustments
Deferred tax liability Deferred tax asset
© 2010 Cengage Australia Pty Limited
146 Company accounting and financial statements 5e solutions manual
Offset deferred tax liability
$
Profit before income tax
600 000
Adjusted for permanent differences
None
0
Accounting profit
600 000
Adjusted for temporary differences
Long service leave
7 000
Annual leave
15 000
Depreciation
8 000
Bad debts
600
Doubtful debts
400
Profit before timing differences
631 000
Accounting records
Taxation records
Temporary result
$
$
$
Profit before temporary differences
631 000
631 000
Adjusted for temporary differences
Deferred tax asset reversal Deferred tax asset
Long service leave
7 000
Annual leave
15 000
Depreciation
8 000
8 000 (1 000) 13 000
2 000
0 (8 000) Deferred tax liability
Bad debts
600
600
0
Doubtful debts
400
0
400
Deferred tax asset
600 000
609 400
x 30%
x 30%
180 000
182 820
170 000
170 000
Accounting profit Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 10 000 Income tax payable 12 820 adjustment Deferred tax asset = (–$1 000 + $2 000 + $400) = $1 400 x .30 = $420 Dr Deferred tax liability = –$8 000 x .30 = $2 400 Dr
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 147
General journal of Holdings Ltd Date
Particulars
Debit
30 June 2012 Income tax expense
Credit $
$
10 000
420
2400
12 820
420
420
Deferred tax asset Deferred tax liability Income tax payable Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
OR: $
Profit before income tax Adjusted for permanent differences
500 000 Accounting profit
$
500 000
Adjusted for temporary differences
None
0 Long service leave
Accounting profit
7 000
500 000 Annual leave
1 000
x 30% Depreciation
(4 000)
Income tax expense
150 000 Doubtful debts
less income tax expensed
150 000
504 500
0
x 30%
Income tax expense adjustment
Income tax payable
151 350
less income tax expensed
150 000
Income tax payable adjustment
Deferred tax assets
$
Long service leave
7 000
Annual leave
1 000
Doubtful debts
Deferred tax asset
500
500
Deferred tax liabilities Depreciation
1 350
$
4 000 x 30%
Deferred tax liability
1 200
8 500
x 30%
2 550
© 2010 Cengage Australia Pty Limited
148 Company accounting and financial statements 5e solutions manual
General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
1 350
1 350
2 550
Income tax revenue
2 550
Recognised temporary differences
1 200
Deferred tax liability
1 200
Recognised temporary differences
2 550
2 550
1 200
1 200
30 June 2013 Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset
Income tax expense
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability Deferred tax asset Offset of deferred tax liability
$
Profit before income tax Adjusted for permanent differences
600 000 Accounting profit
$
600 000
Adjusted for temporary differences
None
0 Long service leave
Accounting profit
(1 000)
Annual leave
2 000
600 000 Depreciation
8 000
x 30% Doubtful debts
400
Income tax expense
180 000
609 400
less Income tax expensed
170 000
x 30%
Income tax expense adjustment
(10 000) Income tax payable less Income tax expensed Income tax payable adjustment
Deferred tax assets Long service leave Annual leave
$ Deferred tax liabilities
(1 000)
Depreciation
2 000
© 2010 Cengage Australia Pty Limited
182 820 170 000 12 820
$
(8 000) x 30%
Chapter 5: Accounting for company income tax 149
Doubtful debts
400 Deferred tax liability
(2 400)
1 400
x 30% Deferred tax asset
420 General journal of Holdings Ltd
Date
Particulars
Debit
Credit $
$
12 820
12 820
420
Income tax revenue
420
Recognised temporary differences
2 400
Income tax expense
2 400
Recognised temporary differences
420
420
420
Deferred tax asset
420
Offset of deferred tax asset
30 June 2013 Income tax expense Income tax payable Decreased income tax payable
Deferred tax asset
Deferred tax liability
Income tax revenue Income tax expense Offset income tax revenue
Deferred tax liability
Question 5.23 Accounting records $
Sales
1 000 000
Taxation records
Temporary result $
$
800 000 200 000
Deferred tax liability
less Expenses
Purchases
400 000
400 000
0
Wages
160 000
160 000
0
Deferred tax liability reversal Deferred tax liability
Building depreciation
20 000
15 000 (5 000)
Vehicle depreciation
12 000
18 000
6 000
Annual leave
7 000
9 000 (2 000) Deferred tax asset reversal
Bad and doubtful debts
3 000
3 200
© 2010 Cengage Australia Pty Limited
(200) Deferred tax asset reversal
150 Company accounting and financial statements 5e solutions manual
Long service leave Accounting profit
9 000
1 000
8 000
Deferred tax asset
389 000
193 800
x 30%
x 30%
116 700
58 140
110 000
110 000
Taxable income Tax rate Income tax expense Income tax payable less Income tax expensed
Income tax expense adjustment 6 700 Income tax payable (51 860) adjustment Deferred tax asset = (–$2 000 – $200 + $8 000) = $5 800 x .30 = $1 740
Deferred tax liability = (+ $200 000 – $5 000 + $6 000) = $201 000 x .30 = $60 300 General journal of Slate Ltd Date
Particulars
Debit
Credit $
$
30 June Income tax expense
6 700
Income tax payable
51 860
Deferred tax asset
1 740
60 300
1 740
Deferred tax asset
1 740
Offset deferred tax liability
Deferred tax liability Taxation adjustments
Deferred tax liability
OR: General journal of Holdings Ltd Date
Particulars
Debit
Credit $
$
51 860
51 860
1 740
1 740
60 300
Deferred tax liability
60 300
Recognised temporary differences
30 June Income tax payable Income tax expense Decreased income tax payable
Deferred tax asset Interest revenue Recognised temporary differences
Income tax expense
© 2010 Cengage Australia Pty Limited
Chapter 5: Accounting for company income tax 151
Income tax revenue
1 740
1 740
1 740
Deferred tax asset
1 740
Offset deferred tax liability
Income tax expense Offset income tax revenue
Deferred tax liability
Question 5.24 General journal of Jongo Ltd Date
Details
Debit
2010 Deferred tax asset 30 June Deferred tax liability Income tax revenue Taxation outcomes
48 000
Deferred tax liability Taxation outcomes
Deferred tax liability Taxation outcomes
6 000
Acc. profit $20 000 x .30
4 500
Tax. loss ($15 000) x .30
10 500 Depreciation diff. $35 000 x .30
12 000
Acc. profit $40 000 x .30
9 000 Reversal tax. loss ($30 000) x .30
3 000 Depreciation diff. $10 000 x .30
2013 Income tax expense 30 June Deferred tax liability
Tax. loss ($160 000) x .30
30 000 Acc. loss $100 000 x .30
2012 Income tax expense 30 June Deferred tax asset
Calculations $
18 000 Depreciation diff. $60 000 x .30
2011 Income tax expense 30 June Deferred tax asset
Credit $
82 500 3 000
Acc. profit $275 000 x .30 Reversal depreciation diff. ($10 000) x .30
Deferred tax asset
43 500 Reversal tax. loss ($145 000) x .30
Income tax payable
42 000 Taxable income (285 000 – $145 000) x .30
Taxation outcomes
Question 5.25 $
Loss before income tax
(25 000)
Adjusted for permanent differences
Impairment loss ‐ Goodwill
5 000
Depreciation on buildings
7 500
© 2010 Cengage Australia Pty Limited
152 Company accounting and financial statements 5e solutions manual
Entertainment expenses
10 000
Diminution in shares
20 000
Exempt dividends
(8 000)
Accounting profit
9 500
Adjusted for temporary differences
Annual leave
12 000
Bad and doubtful debts
4 000
Depreciation
100 000
Profit before timing differences
125 500
Accounting records
Profit before timing differences
Temporary result
$
$
$
125 500
125 500
12 000
10 000
2 000
Deferred tax asset
4 000
1 000
3 000
Deferred tax asset
less Expenses Annual leave Bad and doubtful debts Long service leave
Taxation records
100 000
Accounting profit
150 000 50 000 Deferred tax liability
9 500
(35 500)
30%
30%
2 850
(10 650)
less Income tax expensed
10 000
10 000
Income tax expense adjustment Income tax payable adjustment
(7 150)
(20 650)
Taxable income Tax rate Income tax expense Income tax payable
Deferred tax asset resulting from Temporary differences = ($3 000 + $2 000) = $5 000 x .30 = $1 500 Dr Taxation loss = ($35 200 x .30) = $10 650 Dr Deferred tax liability = $50 000 x .30 = $15 000 Cr Income tax paid during year of $10 000 is refundable. General journal of Blake Ltd Date
Particulars
Debit
30 June Income tax refundable
© 2010 Cengage Australia Pty Limited
Credit $
$
10 000
Chapter 5: Accounting for company income tax 153
Deferred tax asset
12 150
Income tax expense
7 150
Deferred tax liability
15 000
12 150
12 150
Taxation adjustments
Deferred tax liability Deferred tax asset Offset deferred tax asset
OR: $
Loss before income tax Adjusted for permanent differences
$
(25 000) Accounting profit
9 500
Adjusted for temporary differences
Impairment loss ‐ Goodwill
5 000 Annual leave
2 000
Depreciation on buildings
7 500 Bad and doubtful debts
3 000
Entertainment expenses
10 000 Long service leave
Diminution in shares
20 000 Taxation Loss
Exempt dividends
(8 000)
Accounting profit
50 000 (35 500) 30%
9 500 Income tax payable
(10 650)
30% less Income tax expensed
Income tax expense
10 000
2 850 Income tax payable adjustment
less Income tax expensed
10 000
Income tax expense adjustment
(7 150)
(20 650)
Deferred tax asset resulting from Temporary differences = ($3 000 + $2 000) = $5 000 x .30 = $1500 Dr Taxation loss = ($35 200 x .30) = $10 560 Dr Deferred tax liability = $50 000 x .30 = $15 000 Cr Income tax paid during year of $10 000 is refundable. General journal of Blake Ltd Date
Particulars
Debit
30 June Income tax refundable Income tax payable Income tax paid during year refundable
Deferred tax asset Income tax revenue
© 2010 Cengage Australia Pty Limited
Credit $
$
10 000
10 000
10 650
10 650
154 Company accounting and financial statements 5e solutions manual
Recognised effect of $35 500 tax loss
15 000
Deferred tax liability
15 000
Recognised temporary differences
1 500
Income tax revenue
1 500
Recognised temporary differences
12 150
12 150
Income tax expense
Deferred tax asset
Income tax revenue Income tax expense Offset income tax revenue
© 2010 Cengage Australia Pty Limited
