Tutorial Solution Week 7 - ACCY200 FINANCIAL ACCOUNTING IIA...

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ACCY200 FINANCIAL ACCOUNTING IIA SPRING 2009 WEEK 7 TUTORIAL SOLUTIONS: LEO Chapter 4 Practice question 4.10, 4.13 Part C only, 4.14. ♠♠ QUESTION 4.10: Worksheets for current and deferred tax Required: A. What factors would Glasshouse Ltd have considered before recognising a deferred tax asset with respect to the tax loss incurred in the year ended 30 June 2010? B. Calculate and record the balance of any current tax liability for Glasshouse Ltd as at 30 June 2011 using an appropriate worksheet. Show all workings. C. Determine and record the movements in deferred tax assets and liabilities for Glasshouse Ltd for the year ended 30 June 2011 using an appropriate worksheet. Do not net off deferred tax assets and liabilities. GLASSHOUSE LTD A. Deferred tax assets arising from the carry forward of unused tax losses must be recognised to the extent, and only to the extent, that it is probable that future taxable amounts within the entity will be available against which the unused tax losses can be utilised. Therefore, Glasshouse Ltd would need to consider whether it would earn sufficient accounting profits in future financial years or whether deferred tax liabilities on their reversal would produce taxable income at least equal to the carry forward losses of $16 900.
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B. GLASSHOUSE LTD Determination of Taxable Income (for year ended 30 June 2011) Accounting profit before income tax $22 240 Add: Impairment of goodwill (non-deductible) $11 100 Depreciation – plant 14 000 Carrying amount of plant sold 20 000 Bad debts expense 8 100 Annual leave expense 14 500 Insurance expense 12 900 80 600 102 840 Deduct: Grant revenue (exempt) 5 000 Depreciation of plant for tax 20 250 Bad debts written off 6 500 Annual leave paid 11 000 Insurance paid 10 700 Carrying amount of plant sold (tax) 15 000 (68 450) Taxable income 34 390 Add back exempt income 5 000 39 390 Tax losses recouped (16 900) Taxable income 22 490 Current tax liability @ 30% $6 747 The journal entry to record the current tax adjustments are: Income Tax Expense (current) Dr 11 817 Current Tax Liability Cr 6 747 Deferred Tax Asset Cr 5 070 Workings: Gain/loss on sale of equipment : Accounting Taxation Proceeds on sale $23 000 $23 000 Carrying amount 20 000 15 000 Gain (loss) 3 000 8 000
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Annual Leave paid Annual Leave Payable $ $ Leave paid 11 000 1/07/10 Beginning balance 9 700 30/06/11 Ending balance 13 200 Leave Expense 14 500 24 200 24 200 1/7/11 Balance 13 200 Bad Debts written off Allowance for Doubtful Debts $ $ Bad debts written off 6 500 1/07/10 Beginning balance 5 200 30/6/11 Ending balance 6 800 30/06/11 Bad Debt Expense 8 100 13 300 13 300 1/7/11 Balance 6 800 Prepaid insurance Prepaid Insurance $ $ 1/07/10 Beginning balance 5 600 30/6/11 Ending balance 3 400 Insurance paid 10 700 Insurance expense 12 900 16 300 16 300 1/7/11 Balance 3 400
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C. GLASSHOUSE LTD
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Tutorial Solution Week 7 - ACCY200 FINANCIAL ACCOUNTING IIA...

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