Question

At 30 June 2018, Hawaii Limited had the following balances: Asset or liability Computers at cost Accumulated depreciation Carrying amount Tax base 300 000 300 000 100 000 60 000 Accounts receivable 100 000 100 000 Allowance for doubtful debts 10 000 Provision for warranty costs 30 000 Provision for employee benefits (LSL) 20 000 The following information is available for the year ended 30 June 2019. Statement of comprehensive income for Hawaii Limitedfor the year ended 30 June 2019 Revenue 4 000 000 Cost of goods sold expense Depreciation expense Warranty expense Bad and doubtful debts expense Other expenses Profit before tax 1 800 000 60 000 90 000 25 000 1 375 000 650 000 Hawaii Limited depreciates computers over five years in its accounting records but over three years for tax purposes. The straight-line method is used. During the year the company wrote off bad debts amounting to $15 000. Warranty costs of $70 000 were paid during the year. No amounts were paid for long-service leave during the year The following information is extracted from the statement of financial position at 30 June 2019: Assets Accounts receivable 120 000 Allowance for doubtful debts 20 000 Liabilities Provision for warranty costs Provision for employee benefits (LSL) 50 000 30 000 No plant and equipment were purchased during the year and the tax rate at 30 June 2018 and 30 June 2019 was 30%. REQUIRED (a) Show the deferred tax calculation using the deferred tax worksheet and the deferred tax journals for 30 June 2018 (b) Calculate Hawaii Limited's income tax and show the income tax journals for the year ended 30 June 2019 (c) Show the deferred tax calculation using the deferred tax worksheet and the deferred tax journals for 30 June19. (d) Briefly discuss the treatment of deferred tax assets & tax losses in accordance with AASB 112 (8 marks) (9 marks) (10 marks) (3 marks)

Answer 1

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aas per AASB 112

Unused tax losses and unused tax credits A deferred tax asset shall be recognised for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. The criteria for recognising deferred tax assets arising from the carryforward of unused tax losses and tax credits are the same as the criteria for recognising deferred tax assets arising from deductible temporary differences. However, the existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity. In such circumstances, paragraph 82 requires disclosure of the amount of the deferred tax asset and the nature of the evidence supporting its recognition An entity considers the following criteria in assessing the probability that taxable profit will be available against which the unused tax losses or unused tax credits can be utilised: whether the entity has sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, which will result in taxable amounts against which the unused tax losses or unused tax credits can be utilised before they expire; (a) (b) whether it is probable that the entity will have taxable profits before the unused tax losses or unused tax credits expire; whether the unused tax losses result from identifiable causes which are unlikely to recur; and (c) (d) whether tax planning opportunities (see paragraph 30) are available to the entity that will create taxable profit in the period in which the unused tax losses or unused tax credits can be utilised To the extent that it is not probable that taxable profit will be available against which the unused tax losses or unused tax credits can be utilised, the deferred tax asset is not recognised.