Question

26 marks Question #7 Rich Ltd was incorporated on 1 July 2015. The accounting profit and other relevant information of Rich Ltd for the year to 30 June 2016 and 30 June 2017 are as follows: 2016 2017 Profit before tax $1 200 000 $1 500 000 Warranty expense 500 000 Depreciation expense- plant 20 000 20 000 Gain on sale of plant for accounting Warranty paid 250 000 Tax depreciation- plant 30 000 30 000 Gain on sale of plant for tax Provision for warranty - carrying amount 250 000 500 000 Provision for warranty - tax base Plant carrying amount 2 60 000 80 000 Plant - tax base 40 000 70 000 Deferred tax liability at 30 June 3 000 Deferred tax asset at 30 June 150 000 The company tax rate is 30%. AG Required a) Calculate the current tax of Rich Ltd for 2017 b) Calculate the deferred tax of Rich Ltd for 2017 6 marks 15 marks c) Prepare the required tax journal entries. 5 marks

Answer 1

Part-1)

Year-2017:

Accounting profit		1,500,000
Plus:
Warranty expense	0
Depreciation expense - plant	20,000	20,000
		1,520,000
Minus:
Warranty paid	250,000
Tax depreciation - plant	30,000	-280,000
Taxable profit		1,240,000
Current tax liability @ 30%		372,000

Part-2)

Asset	Carrying Amount	Deductible Amount	Tax Base	Taxable Temp Diff	Deductible Temp Diff
Plant	60,000	40,000	40,000	20,000
Liability
Provn for warranty	250,000	250,000	0		250,000
				20,000	250,000
DTL (30%)				6,000
DTA (30%)					75,000
Beginning balance				3,000	150,000
Increase/(Decrease)				3,000	-75,000

Part-3)

Account	Debit	Credit
Income Tax Expense	372,000
Current Tax Liability		372,000
Income Tax Expense	78,000
Deferred Tax Liability		3,000
Deferred Tax Asset		75,000