Required: (1) Calculate the carrying amounts, tax bases and temporary differences for each for the items above on 31 December 2*17, 31 December 2*18 and 31 December 2*19. (2) Calculate the amounts of deferred tax liability and deferred tax asset of X Co. on 31 December 2*17, 31 December 2*18 and 31 December 2*19. (3) Based on the above calculation, make journal entries relating to the deferred tax in 2*18 and 2*19.
The problem deals with X Co.
(1) In 2*17 the enacted income tax rate was 40% of taxable profit. In 2*18 and 2*19 the
enacted income tax rate was 35% of taxable profit. The change of tax rate is unexpected.
(2) On 1 January 2*17, X Co incurred $3,750 of costs in relation to the development of a new product. These costs were deducted for tax purposes in 2*17. For accounting purposes, X
Co capitalised this expenditure and amortised it on straight-line basis over five years.
(3) In 2*18, X Co entered into an agreement with its existing employees to provide health care
benefits to retirees. X Co recognised the cost of this plan as an expense and a liability as employees provide service. No payments to retirees were made for such benefits in 2*18 or 2*19. On 31 December 2*18 and 2*19, the balance of Liability for healthcare benefits was $6,000 and $9,000. Healthcare costs are deductible for tax purposes when payments are made to retirees.
(4) On 31 December 2*16, an item of plant was acquired for $70,000 to be used in the business.
(5) X Co has determined that it is probable that taxable profit will be available against which any resulting
Required:
(1) Calculate the carrying amounts, tax bases and temporary differences for each for the items above on 31 December 2*17, 31 December 2*18 and 31 December 2*19.
(2) Calculate the amounts of
(3) Based on the above calculation, make
Taxable income:
Taxable income can be defined as the income on which the tax liability of the individual is calculated. Taxable income is calculated with the help of gross income by deducting various allowable expenses and losses from the gross income. Tax rate is multiplied with the taxable income for calculation of tax liability.
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