272089
Description
Flashcards by Nafisa Zahra, updated more than 1 year ago
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Created by Nafisa Zahra
over 10 years ago
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| Question | Answer |
| What is the formula to find the tax base of an asset? | CA+ Future deductible amount - Future taxable amount= tax base |
| A company has accounts receivable of $300,000 and an associated doubtful debts allowance of $60,000. The revenue associated with the accounts receivable of $300,000 has already been included in taxable income. The doubtful debts will be deductible when the amount is actually written off as bad debts. T.R.= 30%, what is temporary difference? | 300000 is the tax base and the carrying value is 240000 so temporary difference is 60000 |
| Why does the deferred tax asset arise with accounts receivables which have associated bad debts? | This arises because although the Tax Office hasn't currently given the company a tax deduction for the doubtful debts, it will provide a tax deduction in future periods when the doubtful debts are written off against accounts receivable as bad debts. |
| A company has a liability for employee benefits (relating to long service leave) with a carrying value of $500,000, which will be deductible when the amounts are actually paid. The company also has accrued wages with a carrying value of $300,000, which has already been claimed as a deduction for tax purposes | T.D for LSL is 500000 because CA is 500000 and TB is 0 (nothing has been paid). For accrued wages CA is 300000 and TB is 300000 because it's already been claimed so T.D. is 0. Therefore total temporary difference is 500000. Because this is a liability it gives rise to deferred tax asset |
| Prepaid Insurance gives rise to what? | Deferred tax liability. Tax base is 0 because you haven't incurred it and CA>TB |
| What is the entry for income tax for revalued assets | Dr Revaluation Surplus Cr Deferred Tax Liability |
| What are the year end journal entries to account for tax | Dr Income tax expense x Dr Deferred Tax asset x (if relevant) Dr Revaluation Surplus x Cr Deferred tax liability Cr Income tax payable And then for offsetting Dr Deferred tax liability Cr Deferred tax asset |
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