The accounting profit before tax of Topsy Limited for the year ended 30 June 2021 is $1,600,000. This amount includes $100,000 in warranty expense. Warranty costs paid during the year were $90,000, which are tax deductible when paid. Included in the deferred tax asset (DTA) balance at 30 June 2021 is an amount of $18,000. This relates to $60,000 in tax losses that may be utilised in the year ended 30 June 2021. The tax losses utilised are treated under the tax law as a tax deduction, thus reducing the taxable income. The tax rate is 30%. What is the journal entry to recognise the current tax liability for Topsy for the year ended 30 June 2021, including the utilisation of the tax losses?
The accounting profit before tax of Topsy Limited for the year ended 30 June 2021 is $1,600,000. This amount includes $100,000 in warranty expense. Warranty costs paid during the year were $90,000, which are tax deductible when paid. Included in the deferred tax asset (DTA) balance at 30 June 2021 is an amount of $18,000. This relates to $60,000 in tax losses that may be utilised in the year ended 30 June 2021. The tax losses utilised are treated under the tax law as a tax deduction, thus reducing the taxable income. The tax rate is 30%. What is the journal entry to recognise the current tax liability for Topsy for the year ended 30 June 2021, including the utilisation of the tax losses?
Chapter26: Tax Practice And Ethics
Section: Chapter Questions
Problem 32P
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Transcribed Image Text:The accounting profit before tax of Topsy Limited for the year ended 30 June 2021 is $1,600,000. This amount includes $100,000 in warranty expense. Warranty costs paid during the year were $90,000,
which are tax deductible when paid.
Included in the deferred tax asset (DTA) balance at 30 June 2021 is an amount of $18,000. This relates to $60,000 in tax losses that may be utilised in the year ended 30 June 2021. The tax losses utilised
are treated under the tax law as a tax deduction, thus reducing the taxable income.
The tax rate is 30%.
What is the journal entry to recognise the current tax liability for Topsy for the year ended 30 June 2021, including the utilisation of the tax losses?
OA.
Date
Description
Dr
Cr
30.06.21
Income tax expense
483,000
Current tax liability
465,000
Deferred tax asset
18,000
To record the current tax liability and recognise the utilisation of carry-forward tax losses
O B.
Date
Description
Dr
Cr
30.06.21
Income tax expense
519,000
Current tax liability
459,000
Deferred tax asset
60,000
To record the current tax liability and recognise the utilisation of carry-forward tax losses
Oc.
Date
Description
Dr
Cr
$
30.06.21
Income tax expense
525,000
Current tax liability
465,000
Deferred tax asset
60,000
To record the current tax liability and recognise the utilisation of carry-forward tax losses
OD.
Date
Description
Dr
Cr
30.06.21
Income tax expense
477,000
Current tax liability
459,000
Deferred tax asset
18,000
To record the current tax liability and recognise the utilisation of carry-forward tax losses
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