Question

Concord Ltd. began business on January 1, 2019. At December 31, 2019, it had a $56,550 balance in the Deferred Tax Liability account that pertains to property, plant, and equipment acquired on July 1, 2019 at a cost of $870,000. The property, plant, and equipment is being depreciated on a straight-line basis over six years for financial reporting purposes, and is a Class 8-20% asset for tax purposes. Concord’s income before income tax for 2020 was $65,000. Concord Ltd. follows IFRS.

The following items caused the only differences between accounting income before income tax and taxable income in 2020.

1.		In 2020, the company paid $52,800 for rent; of this amount, $17,600 was expensed in 2020. The other $35,200 will be expensed equally over the 2021 and 2022 accounting periods. The full $52,800 was deducted for tax purposes in 2020.
2.		Concord Ltd. pays $9,400 a year for a membership in a local golf club for the company’s president.
3.		Concord Ltd. now offers a one-year warranty on all its merchandise sold. Warranty expenses for 2020 were $9,900. Cash payments in 2020 for warranty repairs were $4,950.
4.		Meals and entertainment expenses (only 50% of which are ever tax deductible) were $11,100 for 2020.
5.		The maximum allowable CCA was taken in 2020. There were no asset disposals for 2020. Assume the PPE is considered “eligible equipment” for purposes of Accelerated Investment Incentive (under the AII, instead of using the half-year rule, companies are allowed a first-year deduction using 1.5 times the standard CCA rate).

Income tax rates have not changed since the company began operations.

Part 1

Calculate the balance in the Deferred Tax Asset or Deferred Tax Liability account at December 31, 2020.

Balance in deferred tax Choose the answer from the menu in accordance to the question statement                                                                       liabilityasset account

$Enter your answer in accordance to the question statement

eTextbook and Media

List of Accounts

Save for Later

Attempts: 0 of 2 used

Submit Answer

Part 2

The parts of this question must be completed in order. This part will be available when you complete the part above.

Part 3

The parts of this question must be completed in order. This part will be available when you complete the part above.

Part 4

The parts of this question must be completed in order. This part will be available when you complete the part above.

Part 5

The parts of this question must be completed in order. This part will be available when you complete the part above.

Part 6

The parts of this question must be completed in order. This part will be available when you complete the part above.

Answer 1

a) Calculation of Deferred Tax Liability account at December 31, 2020

Particulars	Amount ($)	Amount ($)
Add: Rent as debited to P/L	17400.00
Less: Rent deduction as per tax	-52200.00
Expenses influencing to Deferred Tax Liabilities		34800.00
Add: Warrany expenses as provided	9600.00
Less: Warranty expenses deductible for tax as paid	-4800.00
Expenses influencing to Deferred Tax Assets		-4800.00
Add: Depreciation as per IFRS	138500
Less: Depreciation as per Tax	166200
Expenses influencing to Deferred Tax Liabilities		-27700.00
Deferred Tax Liabilities		2300.00
Deferred Tax Liability for 2020 (2300 x 30%)		690.00
Deferred Tax Liability at beginning of 2020		54015.00
Balance of Deferred Tax Liability account at December 31, 2020		54705.00
Note : Tax rate assumed to be 30%

Working Notes
(i) Depreciation for 2020 as per IFRS (831000/6)	138500
Depreciation for 2020 as per Tax (831000 x 20% )	166200

b) Calculations of Income tax payable

Particulars	Amount ($)
Income before tax	57000.00
Add: Rent as debited to P/L	17400.00
Less: Rent deduction as per tax	-52200.00
Add: Personal expenses not deductible for membership	8600.00
Add: Warrany expenses as provided	9600.00
Less: Warranty expenses deductible for tax as paid	-4800.00
Add: Meals and entertainment expenses	11400.00
Less: Meals and entertainment expenses as deductible under tax	-5700.00
Add: Depreciation as per IFRS	138500.00
Less: Depreciation as per Tax	-166200.00
Taxable Income	13600
Income tax payable for 2020 (13600 x 30%)	4080

c) Journal Entry

Particulars	Debit($)	Credit($)
Income tax expenses A/c	4080
Current Income tax payable A/c		4080
(Being income tax liability accountedin books)

d) Deferred taxes should be presented on the December 31, 2020 balance sheet as below

Particulars	Amount ($)	Amount ($)
Income before income tax		57000
Tax Expenses
Current Tax	4080
Deferred Tax	690	-4770
Income after income tax		52230