What is the main principle of tax-effect accounting as outlined in AASB 112/IAS 12?
Question 1
What is the main principle of tax-effect accounting as outlined in AASB 112/IAS 12?
Answer:
XX
Question 2
How are the current and future tax consequences of transactions accounted for?
Answer:
XX
Question 3
What is an ‘exempt income’ and how does it affect the calculation or recovery of carry‐forward tax losses?
Answer:
XX
Question 4
Calculation of Current Tax Liability (CTL)
SydMel Ltd commences operations on 1 July 2020. One year later, on 30 June 2021, the entity prepares its first statement of comprehensive income and its first
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Statement of Profit or Loss and other Comprehensive Income For the year ended 30 June 2021 |
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Gross Profit |
$510,000 |
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Salaries expenses |
(210,000) |
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Rent expense |
(52,000) |
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Long service leave expenses |
(50,000) |
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Depreciation expense - Plant |
(30,000) |
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Bad debt expense |
(19,000) |
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Accounting Profit Before Tax |
$149,000 |
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The Statement of Financial Position (Extract/partial) As at 30 June 2021 |
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Assets: |
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Cash |
$152,000 |
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Inventories |
198,000 |
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179,000 |
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Prepaid rent |
51,000 |
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Plant |
150,000 |
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(30,000) |
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700,000 |
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Liabilities: |
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Revenue received in advance |
52,000 |
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Accounts payable |
90,000 |
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Loan payable |
210,000 |
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Provision for long service leave |
48,000 |
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$400,000 |
Additional information
- The company tax rate is assumed to be 30%.
- All salaries have been paid as at year end and are deductible for tax purposes.
- None of the long service leave expense has actually been paid. It is not deductible for tax purposes until it is actually paid.
- Rent was paid in advance on 1 July 2020. Actual amounts paid are allowed as a tax deduction.
- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. No
bad debts were written off. - The revenue received in advance is included in the taxable income.
- The machinery is
depreciated on a straight-line basis over 5 years for accounting purposes, but over 4 years for taxation purposes. The machinery is not expected to have any residual value.
Required
- Prepare the current tax worksheet and the journal entry to recognise current tax at 30 June 2021.
- Prepare the
deferred tax worksheet and journal entries to adjust deferred tax accounts.
Answer Template for CTL:
SydMel Ltd
Current Tax Worksheet
(for year ended 30 June 2021)
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Accounting profit |
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Add (AD items*): |
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Deduct (BC items*): |
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Taxable profit |
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Tax payable @ 30% |
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- *Refer to our analogies used in last week lecture – ‘A’ for recognised accrual accounting Expenses, ‘B’ for recognised accrual accounting Income, ‘C’ for deductible tax expense amount and ‘D’ for Tax recognisable Income.
Workings:
Rent paid: XX
Depreciation of machinery for tax purposes: XX
The entry to recognise current tax is:
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Description |
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Dr $ |
Cr $ |
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