Company Accounting: Tax Calculation, Deferred Tax Worksheet, Journal Entries

ACC322 - Company Accounting

Question 1: Accounting for Company tax
1. Prepare current tax worksheet; calculate current tax liability:
Current tax worksheet
for year ended 30th June 2017
Profit before income tax
$240,20
0
Add:
Doubtful debt expense $4,000
Depreciation expense:
Plant $2,025
building $475
Employees benefit expense
$12,00
0
Entertainment expense $7,200
Insurance expense $6,200
Fines and penalties $5,400
Warranty expense $8,500 $45,800
$286,00
0
Deduct:
Tax depreciation - plant
$18,00
0
Tax amortization development cost
$16,00
0
Tax insurance $6,200 -$40,200
Tax loss
$245,80
0
Current tax liability @ 30% $73,740
2. Prepare the deferred tax worksheet to calculate the deferred tax asset and
liability balances and adjustments for the year ended 30 June 2020.
Include all accounts and net balances where appropriate.
Deferred tax for the year
Tax depreciation greater than depreciation expense
=Accumulated depreciation for tax purposes greater than for accounting purposes
= The carrying amount of the depreciable asset is greater than the tax base
= Deferred tax liability

Increase in deferred tax liability = ($18000 — $2025) x 30% = $4,792.5
Doubtful debts expense greater than bad debts written off
= Allowance for doubtful debts for accounting purposes but not tax purposes
= The carrying amount of accounts receivable is less than the tax base
= Deferred tax asset
No changes in deferred tax asset
Long service leave expense greater than long service leave paid
= Provision for long service leave for accounting purposes but not tax purposes
= The carrying amount of the liability is greater than the tax base
= Deferred tax asset
No changes in deferred tax asset
3. Prepare the journal entries to recognize the current tax liability, deferred
tax assets, and liabilities at 30 June 2020
Tax entries for 30th June 2020
The journal entry for current tax is:
Income tax expense Dr. 73,740
Current tax liability Cr. 73,740
The journal entry for deferred tax is:
Deferred tax asset Dr. 300
Deferred tax liability Cr. 300
Current tax = $73,740
Deferred tax from origination and reversal of temporary differences = (8,250)
Income tax expense = $65,490
Question 2: Business combinations