Answered: Calculate Deferred Tax Assets and…

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter17: Corporations: Introduction And Operating Rules

Section: Chapter Questions

Problem 47P

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Question

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The following information was extracted from the records of Elwood Ltd as at 30 June 2020.

Asset (liability)	Carrying amount ($)	Tax base ($)
Machinery	720,000	600,000
Accounts receivable	262,500	322,500
Prepaid rent	45,000	0
Provision for warranty	(86,000)	0
Insurance payable	(15,000)	0
Deposit received in advance	(54,000)	0

Depreciation rate for machinery is 20% per year. For tax purpose, the depreciation rate is 25%. An allowance for doubtful debts of $60,000 has been raised against accounts receivable for accounting purposes, but such debts are deductible only when written off as uncollectible. Deposits are taxable when received, and warranty costs are deductible when paid. Deferred tax assets and deferred tax liabilities as at 30 June 2019 were $35,000 and $31,250 respectively. The tax rate is 30%.

Question

Calculate Deferred Tax Assets and Deferred Tax Liabilities as at 30 June 2020. Show your calculations by creating columns for carrying amount, tax base, assessable temporary difference, and deductible temporary difference in your worksheet.
Prepare the relevant journal entries as at 30 June 2020.
Justify your classification of each difference as either deductible temporary difference or taxable temporary difference for:
1. Machinery, and
2. Accounts receivable

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