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Tutorial 2

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Tutorial 2
Chapter 6
Question 6.2

Current tax liability in four cases

The chief financial officer of Lost Weekend Ltd has asked you to calculate the taxable income and prepare the journal entry for the current tax liability in each of the following four cases.
Case 1
Case 2
Case 3
Case 4
Accounting profit (loss)
After debiting as expense:
Goodwill impairment loss*
Entertainment costs*
Donation to political party*
Depreciation expense – plant
Long-service leave expense
For tax purposes:
Tax depreciation for plant
Long-service leave paid
*These items are non-deductible for tax purposes.
Assume a tax rate of 30%.

$40 000

$20 000

$5 000

$(10 000 )

6 000
—
1 000
4 000
600

—
6 000
3 000
2 000
600

—
7 000
—
10 000
600

8 000
—
—
2 000
1 …show more content…

ear to 30 June 2015 is:
Income Tax Expense
Current Tax Liability

Dr
Cr

507 000
507 000

The journal entry for deferred tax for the year to 30 June 2015 is:
Deferred Tax Asset
Deferred Tax Liability
Income Tax Expense

Dr
Cr
Cr

150 000
3 000
147 000

In the 30 June 2015 financial statements:
⇒ Income tax expense for the year $360 000 ($507 000 – $147 000)
⇒ Current tax liability $507 000
⇒ Deferred tax liability $3 000
⇒ Deferred tax asset $150 000
Current Tax Worksheet for the year ended 30 June 2016
Accounting profit
Add:
Warranty expense
Depreciation expense - plant
Deduct:
Warranty paid
Tax depreciation - plant
Taxable profit
Current tax liability @ 30%

$1 500 000
0
20 000

250 000
30 000

20 000
1 520 000

(280 000)
1 240 000
$ 372 000
Page 5 of 33

Deferred Tax Worksheet as at 30 June 2016

Asset
Plant
Liability
Provn for warranty

Carrying
Amount

Deductible
Amount

Tax
Base

Taxable
Temp Diff

60 000

40 000

40 000

20 000

250 000

250 000

0
20 000
6 000

DTL (30%)
DTA (30%)
Beginning balance
Increase/(Decrease)

3 000
$ 3 000

Deductible
Temp Diff

250 000
250 000
75 000
150 000
$ (75 000)

The journal entry for current tax for the year to 30 June 2016 is:
Income Tax Expense
Current Tax Liability

Dr
Cr

372 000
372 000

The journal entry for deferred tax for the year to 30 June 2016 is:
Income Tax Expense
Deferred Tax Liability
Deferred Tax Asset

Dr
Cr
Cr

78 000
3 000
75 000

In the 30 June 2016 financial statements:
⇒ Income tax expense $450 000 ($372

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