Revalued plant is depreciated for accounting purposes

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Revalued plant is depreciated for accounting purposes based on revalued amount of plant rather than its original cost. In contrast, tax depreciation is based on the original cost of plant. Inventory is valued at the lower of cost and net realisable value for accounting purposes. The valuation adjustment that arises from the use of net realisable value is recognised as an expense in accounting profit. For tax purposes, inventory is only deductible when sold based on its original cost. 5. Describe how to prepare a current tax worksheet to determine the current tax for the period. What items are typically added back to accounting profit and what items are deducted? The current tax worksheet uses an indirect approach to determine taxable profit. It begins with accounting profit, that is, profit before tax. Adjustments are then made to: remove items included in profit before tax that do not enter into the calculation of taxable profit add in other items that do enter into the calculation of taxable profit Figure 6.8 in the textbook shows how the adjustments are made. (Revenues or gains that are not equal to assessable incomes in the period - subtract Interest revenue
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Dividend revenue Gain on sale of plant for accounting purposes Unearned revenue at the beginning of the year. Expenses or losses that are not equal to deductions in the period - add back Non-deductible expenses, for example, entertainment Impairment loss on goodwill or other assets Warranty expense Bad and doubtful debts expense, Depreciation expense Development expense. Assessable incomes that are not equal to revenues or gains in the period - add in Interest received Dividends received Gain on sale of plant for tax purposes Unearned revenue at the end of the year. Deductions that are not equal to expenses or losses in the period - subtract Long service leave paid Warranty paid Bad debts written off Tax depreciation Development costs paid. 6. Explain why the current tax liability at the end of the reporting period may not equal the income tax expense for the period. The current tax liability represents the amount of tax expected to be paid to the Australian Tax Office by the company on assessment for the current year using the current tax rates and tax law. Current tax liability = tax on taxable income less any instalments of tax paid for the year Tax on taxable income = taxable income x corporate tax rate In contrast, income tax expense relates to income tax that is expected to be paid or refunded in the future because of current tax and deferred tax. Income tax expense includes a component for the current tax liability but also includes a component for any deferred tax liabilities and assets. As shown in the textbook, the current tax included in profit or loss for the year is recognised as follows:
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30.6.17 Income Tax Expense Current Tax Liability (Step 1: The journal entries to recognise the current tax for the year based on taxable income) D r Cr 78 000 78 000
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