Income tax expense also includes the deferred tax

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Income tax expense also includes the deferred tax that is included in the profit or loss for the year because of changes to assets and liabilities as follows: 30.6.17 Income Tax Expense Deferred Tax Asset Deferred Tax Liability (Step 2: The journal entries to recognise the deferred tax in- cluded in the profit or loss for the year) Dr Dr Cr 54 000 6 000 60 000 Income tax expense does not include the deferred tax that is attributable to changes in assets and liabilities that are recognised in other comprehensive income as follows: 30.6.17 Tax on revaluation increase (OCI) Deferred Tax Liability (Step 3: The journal entries to recognise the deferred tax in- cluded in other comprehensive income for the year) Dr Cr Cr 30 000 30 000 8. Describe how to prepare a deferred tax worksheet to determine the deferred tax for the period. (1) (2) (3) (4) (5) (6) Asset/Liability Carrying Amount Deductible Amount Tax Base Taxable Temp Diff Deductible Temp Diff Total Total Deferred Tax Asset Total x tax rate Deferred Tax Liability Total x tax rate
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The first column in the worksheet lists the names of each asset and liability of the company. The second column of the worksheet sets out the carrying amount (book value) of each asset and liability. The third column of the worksheet records the deductible amount for income tax purposes when an asset is recovered or liability settled. The fourth column shows the tax base of an asset or liability. The tax base of an asset of liability is the amount implied by income tax legislation. The fifth and sixth columns of the worksheet record the taxable and deductible temporary differences of the assets and liabilities respectively. If the carrying amount of an asset or liability is equal to its tax base, then there is no temporary difference to record. The taxable temporary differences are totalled and multiplied by the corporate tax rate to determine the deferred tax liability balance at the end of the period. The deductible differences are totalled and multiplied by the corporate tax rate to determine the deferred tax asset balance at the end of the period. 15. Why are tax adjustments for prior periods sometimes necessary? How are such adjustments brought to account? Tax adjustments for prior periods arise because of an underprovision or overprovision of tax at the time the financial statements are completed. The current and deferred tax balances are determined for accounting purposes using the best information available at the time. However, these balances are subject to any further adjustments that may be made for the period when the income tax return is finally lodged with the ATO. The income tax return may be lodged some months after the financial statements are completed. The tax adjustments for prior periods that relate to current and deferred tax recognised in the profit or loss are brought to account in the profit or loss of the current period.
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