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ACFI2012 WORKSHOP QUESTIONS TOPIC 3: ACCOUNTING FOR
COMPANY INCOME TAX
Loftus Chapter 12
Exercise 12.5
Calculation of deferred tax
The following information was extracted from the records of Sol Ltd for the year ended
30 June 2024.
SOL LTD
Statement of Financial Position (extract)
as at 30 June 2024
Assets
Accounts receivable $ 50 000
Allowance for doubtful debts (4 000) $46 000
Motor Vehicles 200 000
Accumulated depreciation – motor vehicles (50 000) 150 000
Liabilities
Interest payable 2 000
Additional information
The accumulated tax depreciation for motor vehicles at 30 June 2024 was $100 000.
The tax rate is 30%.
Required
Prepare a deferred tax worksheet to identify the temporary differences arising in respect
of the assets and liabilities in the statement of financial position, and to calculate the
balance of the deferred tax liability and deferred tax asset accounts at 30 June 2024.
Assume the opening balances of the deferred tax accounts were $0.
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Exercise 12.15
Current and deferred tax
Konpayi Ltd has determined its accounting profit before tax for the year ended 30 June
2023 to be $256 700. Included in this profit are the items of revenue and expense shown
below.
Royalty revenue (non-taxable) $ 8 000
Entertainment expense 1 700
Depreciation expense — buildings 7 600
Depreciation expense — plant 22 500
Doubtful debts expense 4 100
Annual leave expense 46 000
Insurance expense 4 200
Development expense 15 000
The accounting profit for Konpayi Ltd for the year ended 30 June 2023 also
included a gain on sale of buildings of $5000.
The company’s draft statement of financial position at 30 June 2023 showed the
following assets and liabilities.
Assets
Cash $ 2 500
Accounts receivable $ 21 500
Less: Allowance for doubtfu
l debts (4 100) 17 400
Inventories 31 600
Prepaid insurance 4 500
Land 75 000
Buildings 170 000
Less: Accumulated depreciation (59 500) 110 500
Plant 150 000
Less: Accumulated depreciation (67 500) 82 500
Deferred tax asset (opening balance) 9 600
333 600
Liabilities
Accounts payable 25 000
Provision for annual leave 10 000
Deferred tax liability (opening balance) 6 000
Loan 140 000
$181 000
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Additional information
(a)Quarterly income tax instalments paid during the year were as follows.
28 October 2022 $18 000
28 January 2023 17 500
28 April 2023 18 000
The final balance of tax payable was due on 28 July 2023.
(b)The tax depreciation rate for plant (which cost $150 000 3 years ago) is 20%.
Depreciation on buildings is not deductible for taxation purposes.
(c)Depreciation on buildings is not deductible for taxation purposes. The gain on sale of
buildings of $5000 (see above) was recognised on buildings sold on 1 January 2023 that
had cost $100 000 when acquired on 1 January 2017. The company depreciates
buildings for accounting purposes at 5% p.a., straight-line. Any gain (loss) on sale of
buildings is not taxable (not deductible).
(d)During the year, the following cash amounts were paid:
Annual leave $52 000
Insurance 3 700
(e)Bad debts of $3500 were written off against the allowance for doubtful debts during
the year.
(f) The $15 000 spent (and expensed) on development during the year is not deductible
for tax purposes until 30 June 2024.
(g)Konpayi Ltd has tax losses amounting to $12 500 carried forward from prior years.
(h)The company tax rate is 30%.
Required
1. Prepare the current tax worksheet and the journal entry to recognise current
tax at 30 June 2023.
2. Prepare the deferred tax worksheet and journal entries to adjust deferred tax
accounts.