Financial Accounting Theory and Practice Assignment
Module - Accounting for Income Taxes
Question -
As at 1st July 2016 Moorings Ltd had the following opening account balances:
|
Deferred Tax Asset
|
$36 000Cr
|
|
Deferred Tax Liability
|
$25 000Dr
|
During the financial year ending 30 June 2017, the following tax deductions were allowed:
|
Tax depreciation - Equipment
|
$16 000
|
|
Bad debts written off
|
$4 000
|
|
Long service leave paid
|
$5 000
|
Moorings Ltd recorded a profit before tax of $160 000 that included the following items:
Depreciation - Equipment $14 000
Long service leave expense $8 000
Doubtful debts expense $6 000
Goodwill impairment $4 000
Depreciation rates are higher for taxation than accounting purposes. The company's income tax rate is 30%.
Required:
a) Calculate the current tax liability for the year ending 30 June 2017.
b) Calculate how much Deferred Tax Liability and Deferred Tax Asset will increase or decrease for the year ending 30 June 2017 due to the temporary differences. Show all workings.
c) Prepare all journal entries to account for income tax. Assume all recognition criteria are satisfied. Ensure your journal is in the correct format, with column headings and narrations.
d) Prepare T-accounts for Deferred Tax Liability and Deferred Tax Asset at 30 June 2017.