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On 1 July 2011, Kookaburra Ltd acquired an item of plant at a cost of $200 000. The machine has an expected useful life of eight years, and Kookaburra Ltd adopts the straight-line method of deprecation. The tax depreciation rate for this type of plant is 25%. The company tax rate is 30%.
Kookaburra Ltd measures plant at fair value. At 30 June 2012, Kookaburra Ltd determines the fair value of the plant to be $186 000, with a remaining useful life of three years. At 30 June 2013, the fair value of the plant is determined to be $112 000, with a remaining useful life of two years.

Required
1. For the year ending 30 June 2012:
a) Prepare the necessary journal entries to account for the depreciation and
revaluation of plant.
b) Determine the carrying amount and tax base of the plant after revaluation, and
prepare the necessary journal entries to account for any deferred tax effect
relating to the plant. Show all workings.
c) In relation to the plant, discuss why the temporary difference exists and describe
the adjustment required to the deferred tax account.

2. For the year ending 30 June 2013:
a) Prepare the necessary journal entries to account for the depreciation and
revaluation of plant.
b) Determine the carrying amount and tax base of the plant after revaluation, and
prepare the necessary journal entries to account for any deferred tax effect
relating to the plant. Show all workings.
c) In relation to the plant, describe the adjustment required to the deferred tax
account.

 

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