Pine Ltd is reviewing its deferred tax for the year. In each of the following situations prepare the end-of-period adjustment journal entries to account for income tax on the initial appearance or reversal of any temporary differences. Explain in each case why particular accounts are affected. The company purchased a depreciable asset at the beginning of the year for $200000. For accounting purposes, an annual depreciation rate of 20% straight-line is used, whereas for taxation the rate is 30% straight-line. The company’s provision for long-service leave at the beginning and end of the year are $80000 and $77 500 respectively. In the current year, $10000 in long-service leave was paid to a long-standing employee. The company has interest receivable of $25 000 at the end of the year. No interest was receivable at the beginning of the year. Interest income is included in taxable profit only when received. The company has revalued land at the end of the year. The land was revalued during the year from its original cost of $150 000 to a fair value of $250 000.

Solution: 1) Depreciable asset: The carrying amount is $ 160,000 (Cost of $200,000-Accumulated…

Answered: Pine Ltd is reviewing its deferred tax…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pine Ltd is reviewing its deferred tax for the year. In each of the following situations prepare the end-of-period adjustment journal entries to account for income tax on the initial appearance or reversal of any temporary differences. Explain in each case why particular accounts are affected.

The company purchased a depreciable asset at the beginning of the year for $200000. For accounting purposes, an annual depreciation rate of 20% straight-line is used, whereas for taxation the rate is 30% straight-line.

The company’s provision for long-service leave at the beginning and end of the year are $80000 and $77 500 respectively. In the current year, $10000 in long-service leave was paid to a long-standing employee.

The company has interest receivable of $25 000 at the end of the year. No interest was receivable at the beginning of the year. Interest income is included in taxable profit only when received.

The company has revalued land at the end of the year. The land was revalued during the year from its original cost of $150 000 to a fair value of $250 000.

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