Question

Phipps Car Rentals Ltd commenced operations on 1 July 2016. At this time it purchased 4 cars at a cost of $30,000 each, and proceeded to rent these on a short-term basis to people visiting Canberra. Accounting operating profit before tax was as follows:

2016/7	$250,000
2017/8	$350,000
2018/9	$450,000

For taxation purposes the cars are depreciable at 15% p.a. whilst for accounting purposes they a depreciable at 10% p.a., both straight line. The tax rate for the years 2016/7 is 30%. After the commencement of the year 2017/8 it is announced that the tax rate decreases to 27.5% and this applies for the 2017/8 year onwards

2016/7 - When establishing Phipps in 2016/7, costs of $5,000 were incurred which are non-deductable for tax purposes. To minimise his tax payments in this financial year, Phipps prepays interest of $9,000 relating to the next month.

2017/8

Phipps is fined $10,000 for the non-payment of superannuation on account of employees (this is not tax deductible).

2018/9

Phipps recognises the provision for long service leave of $5,000 as an expense. Additionally, Phipps believes that the cars are still worth $25,000 each and revalues the cars to this value at the end of the financial year. Phipps has a policy of not selling cars. Rather as they get older, the cars are rented to less discerning markets and ultimately to backpackers.

Required

Prepare journal entries to record the tax expense and related changes in the deferred tax balances for years 2016/7-2018/9 in accordance with AASB112 Income Taxes.

ANSWER:

		2017	2018		2019
Acctg PBT		250,000	350,000		450,000
Acctg Deprec (30,000 x 4)= 120,000 *10%		12,000	12,000		12,000
Tax Deprec (30,000 x 4)= 120,000 *15%		-18,000	-18,000		-18,000
Establish		5000
Interest		-9,000	9,000
Fine			10,000
LSL					5000
Have to add and minus then 30% tax below		240,000	363,000		449,000
Current Tax		72000	99825		123475

2017 2018 2019 250,000 350,000 450,000 Acctg PBT Acctg Deprec (30,000 x 4)= 120,000 12,000 12,000 12,000 *10% Tax Deprec -18,000 -18,000 -18,000 (30,000 x 4)= 120,000 *15% Establish 5000 9,000 Interest -9,000 Fine 10,000 LSL 5000 Have to add and minus 240,000 363,000 449,000 then 30% tax below 99825 Current Tax 72000 123475 2017 Difference Accte tax 108,000 $102,000.00 $6,000.00 Cars 1800 Interest 9000 9000 2700 4500 2018 Difference Accts tax Cars 96 ,000 $84,000.00 $12,000 3300 2019 Difference Acctg tax 100,000 $66,000.00 $34,000 Cars 9350 -5000 LSL 5000 -1375

I would like a full break down as to how the figures were calculated, these are correct answers from textbook not what has been posted as an answer to a similar question

Answer 1

Please let me know in comment if you need any further clarification

2016/7 Tax expense 72000 Current tax payable (78000) Calculation shown aboue x expenge. 4500 llabelity Defessed tax (4500 shown above in calculation question 9017/8 2017/8 lax expense Current Tax 99825 ( 99825 payable calculation shown abone Deferred tax liability Тау еврече . 1200 (1200 $4500 - $3300+ $1200 2018/9 Deleued feux auet (1375) Scalculation Tag eeperue 275 Balancin Revaluation increment 4400 Defessed tax liability (6050) (484000 - $1000X 4 X 27.56 $9350 - $3300 = $4000 x 4 x 27.5%