Corporate Accounting: Income Tax Assignment for HI5020, T1 2020

This assignment solution analyzes the impact of income tax on corporate accounting, using Woolworths corporation ltd. as a case study. It defines key terminologies such as accounting profit, taxable profit, temporary differences, deferred tax assets and liabilities, and income tax expense. The solution explains the differences between income tax paid and income tax expense, highlighting the role of deferred tax. It also clarifies the concepts of current tax assets and the reasons for differences in tax amounts, emphasizing the divergence between accounting standards and tax regulations. The solution concludes by summarizing how income tax expense is recognized and the nature of current tax payable. This comprehensive overview helps students understand and apply accounting principles related to income tax in a corporate setting.

Corporate Accounting

Introduction
 The paper studies the effect of income tax on the
corporate accounting of a company. The company
taken for analyzing different concepts related to tax is
the Woolworths corporation ltd.
 The company is listed under the ASX stock
exchange and follows the tax regime of Australia.
The corporation tax rate is 30%.

Terminologies
 Accounting profit is the net income earned by an
organization as per GAAP.
 Taxable profit is the profit earned by the company
which is taxable under the applicable taxation law.
 Temporary difference means the difference between
the carrying value of assets and liability with its base
rate.
 Temporary difference can yield taxable amounts
known as taxable temporary difference.

 Deductible temporary difference are the temporary
difference which generates deferred tax assets or
liabilities which are subtracted or added back in the
future accounting income.
 Deferred tax assets- It is the amount of income tax
which is recoverable in the future in relation to
deductible temporary differences, carry forward of
unused tax losses and the carry of unused tax
credits.

 Deferred tax liability - It can be generated when the
carrying amount of the assets is higher than the tax
base or if the carrying amount of the liability is less
than the tax base.
 Income tax expense – it is the amount of expense
which is recognized for an accounting period for the
applicable government tax calculated on the basis of
taxable profit.

Reason for difference between income tax paid
and income tax expense
 Income tax expense is the calculated tax as per the
applicable accounting standard and the tax bas rate.
It varies from the actual tax paid by the company
because of the existence of deferred tax assets and
deferred tax liabilities.
 Income tax expense = taxes payable + deferred
tax liability – deferred tax asset

Current tax asset
 The current tax asset refers to domestic and foreign
taxes that are calculated based on the taxable profits
of the company.
 Income tax payable is not like income tax expense as
tax payable is calculated by the company itself based
on accounting rules and concepts.

Different amount of income tax
 Income tax expense and income tax payable differs
from each other as income tax that is shown in the
consolidated income statement is not the amount
that has been paid to the government instead it is an
estimation made by the company related to the
income tax amount by taking into consideration the
profits earned during a particular financial year.

Reason for differences
 The standard accounting rules that are followed by
the company while reporting the financial results are
different from the rules and regulations that have
been followed for calculating income tax payable for
the business.
 This divergence in the income tax amount can be
explained by taking into account specific items, such
as identifying how the company depreciates its
assets.

outcomes
 Income tax expense is recognized in the income
statement, and the current tax payable reflects the
amount that has to be paid to the taxation authorities
on taxable income for the particular financial year by
using the prevailing tax rate in the country and by
even making specific adjustments with respect of the
previous year.

Thank you