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    ACCT5942 Week4 Presentation

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    This document contains two practice quiz questions (Questions 15 and 16) about accounting for company income tax. Question 15 involves calculating the adjustment to income tax expense when the tax rate changes from 40% to 30%. The summary is that the company has deferred tax assets of $12,000 and deferred tax liabilities of $30,000. When the tax rate decreases, it results in a credit to income tax expense of $4,500. Question 16 involves calculating the deferred tax item for credit sales of $100,000 with an allowance for doubtful debts of $3,000 that is not tax deductible, and accrued interest revenue of $7,000 that is not taxed until received. The summary

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    ACCT5942 Week4 Presentation

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    DuongPham
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    This document contains two practice quiz questions (Questions 15 and 16) about accounting for company income tax. Question 15 involves calculating the adjustment to income tax expense when the tax rate changes from 40% to 30%. The summary is that the company has deferred tax assets of $12,000 and deferred tax liabilities of $30,000. When the tax rate decreases, it results in a credit to income tax expense of $4,500. Question 16 involves calculating the deferred tax item for credit sales of $100,000 with an allowance for doubtful debts of $3,000 that is not tax deductible, and accrued interest revenue of $7,000 that is not taxed until received. The summary

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    This document contains two practice quiz questions (Questions 15 and 16) about accounting for company income tax. Question 15 involves calculating the adjustment to income tax expense when the tax rate changes from 40% to 30%. The summary is that the company has deferred tax assets of $12,000 and deferred tax liabilities of $30,000. When the tax rate decreases, it results in a credit to income tax expense of $4,500. Question 16 involves calculating the deferred tax item for credit sales of $100,000 with an allowance for doubtful debts of $3,000 that is not tax deductible, and accrued interest revenue of $7,000 that is not taxed until received. The summary

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    645 views13 pages

    ACCT5942 Week4 Presentation

    Uploaded by

    DuongPham
    This document contains two practice quiz questions (Questions 15 and 16) about accounting for company income tax. Question 15 involves calculating the adjustment to income tax expense when the tax rate changes from 40% to 30%. The summary is that the company has deferred tax assets of $12,000 and deferred tax liabilities of $30,000. When the tax rate decreases, it results in a credit to income tax expense of $4,500. Question 16 involves calculating the deferred tax item for credit sales of $100,000 with an allowance for doubtful debts of $3,000 that is not tax deductible, and accrued interest revenue of $7,000 that is not taxed until received. The summary

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    ACCT 5942

    ACCOUNTING FOR
    COMPANY INCOME TAX
    Practice Quiz Question 15 & Question 16

    By : Tushar Soni z5001270


    Margareth Verdiana z3494390

    QUESTION 15
    Balchin Limited had the following deferred tax balances at
    reporting date :
    Deferred Tax Assets$ 12,000
    Deferred Tax Liabilities $ 30,000
    Effective from the first day of the next financial period, the
    company rate of income tax was reduced from 40% to 30%. The
    adjustment to income tax expense to recognise the impact of the
    tax rate change is :
    a. DR $ 1,800
    b. DR $ 6,000
    c. DR $ 4,500
    d. CR $ 6,000
    e. CR $ 4,500

    AASB112 Paragraph 51

    Deferred Tax Asset


    Impact on Deferred Tax Asset
    $ 12,000 x (40 - 30)/(40) = $ 3,000
    Tax Rate decreases which means the future tax savings
    arising from deferred tax assets will reduce by $ 3,000,
    which means, the journal entry for Deferred Tax Asset part
    would be :
    CR. Deferred Tax Asset

    $ 3,000

    Deferred Tax Liability


    Impact on Deferred Tax Liability
    $ 30,000 x (40 - 30)/(30) = $ 7,500
    It will produce a future gain, as liability represents future
    tax obligation
    The journal entry for Deferred Tax Liability part would be
    DR. Deferred Tax Liability
    $ 7,500

    Putting DTA & DTL together


    Journal Entry :
    DR. Deferred Tax Liability
    $ 7,500
    CR.
    Deferred Tax Asset
    $ 3,000
    DR. Deferred Tax Liability
    $ 7,500
    CR. Deferred tax Asset
    $ 3,000
    CR. Income Tax Expense(Deferred)
    $ 4,500
    As a result of reduction in tax rate from 40 % to 30%, the
    reduction in Income Tax Expense (Deferred) by $ 4,500.

    QUESTION 15
    Balchin Limited had the following deferred tax balances at
    reporting date :
    Deferred Tax Assets$ 12,000
    Deferred Tax Liabilities $ 30,000
    Effective from the first day of the next financial period, the
    company rate of income tax was reduced from 40% to 30%. The
    adjustment to income tax expense to recognise the impact of the
    tax rate change is :
    a. DR $ 1,800
    b. DR $ 6,000
    c. DR $ 4,500
    d. CR $ 6,000
    e. CR $ 4,500

    QUESTION 16
    Sinfonia ltd made credit sales for this period of $100 000. The
    allowance for doubtful debts for these sales is $3 000. For
    taxation purposes the amount provided for doubtful debts is
    not tax-deductible and the taxation office has included the $
    100 000 in taxable income. Sinfonia also has accrued interest
    revenue of $7000 that will not be taxed until it is received in
    cash. The tax rate is 30%. What is deferred tax item to record
    the tax effect ?
    a. Deferred tax asset of $ 2100
    b. None of the above
    c. Deferred tax liability of $ 2100
    d. Deferred tax liability of $ 900
    e. Current tax liabilities of $ 900

    Account Receivable &


    Allowance for Doubtful Debts

    Allowance for Doubtful Debts


    ACCOUNTING
    Accounting expense when regarded
    as doubtful

    TAX
    Deductible when written off as bad
    debt expense

    Applying to the question


    Credit Sales = $100,000.
    Allowance for Doubtful Debts = $ 3,000.

    Carrying
    Amount

    FTA

    FDA

    Tax
    Base

    $97,000

    $0

    $ 3,000

    $100,000

    CA < TB in Assets, results in Deferred Tax Assets (DTA).


    Deferred Tax Asset = $ 900
    Journal Entry
    Dr. Deferred Tax Assets

    $ 900

    However, NOT TAX DEDUCTIBLE. In this case, we will not consider the tax effect of this
    Allowance for Doubtful Debts.

    Accrued Interest Revenue


    ACCOUNTING
    Recognised as revenue when earned

    TAX
    Recognised as Taxable Income when
    cash received

    Applying to the question


    Carrying
    Amount

    FTA

    FDA

    Tax
    Base

    $7,000

    $ 7,000

    $0

    $0

    CA > TB in Asset, results in Deferred Tax Liabilities (DTL)

    Effects of Tax Rate


    Tax Rate = 30 %
    Taxable Temporary Differences = $ 7,000
    Deferred Tax Liability = $ 7,000 x 30 % = $ 2,100
    Journal Entry
    Dr. Income Tax Expense
    Cr. Deferred Tax Liability

    $ 2,100
    $ 2,100

    QUESTION 16
    Sinfonia ltd made credit sales for this period of $100 000. The
    allowance for doubtful debts for these sales is $3 000. For
    taxation purposes the amount provided for doubtful debts is
    not tax-deductible and the taxation office has included the $
    100 000 in taxable income. Sinfonia also has accrued interest
    revenue of $7000 that will not be taxed until it is received in
    cash. The tax rate is 30%. What is deferred tax item to record
    the tax effect ?
    a. Deferred tax asset of $ 2100
    b. None of the above
    c. Deferred tax liability of $ 2100
    d. Deferred tax liability of $ 900
    e. Current tax liabilities of $ 900

    Thank You

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