Income tax expense also includes the deferred tax that is included in the profit or loss for the yearbecause of changes to assets and liabilities as follows:30.6.17Income Tax ExpenseDeferred Tax AssetDeferred Tax Liability(Step 2: The journal entries to recognise the deferred tax in-cluded in the profit or loss for the year)DrDrCr54 0006 00060 000Income tax expense does not include the deferred tax that is attributable to changes in assets andliabilities that are recognised in other comprehensive income as follows:30.6.17Tax 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)DrCrCr30 00030 0008.Describe how to prepare a deferred tax worksheet to determine the deferred tax for theperiod. (1)(2)(3)(4)(5)(6)Asset/LiabilityCarryingAmountDeductibleAmountTaxBaseTaxableTemp DiffDeductibleTemp DiffTotalTotalDeferred TaxAssetTotal x tax rateDeferred TaxLiabilityTotal 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 andliability.The third column of the worksheet records the deductible amount for income tax purposes whenan 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 liabilityis the amount implied by income tax legislation.The fifth and sixth columns of the worksheet record the taxable and deductible temporarydifferences of the assets and liabilities respectively. If the carrying amount of an asset or liabilityis equal to its tax base, then there is no temporary difference to record.The taxable temporary differences are totalled and multiplied by thecorporate tax rate to determine the deferred tax liability balance at the endof the period.The deductible differences are totalled and multiplied by the corporate taxrate 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 suchadjustments brought to account?Tax adjustments for prior periods arise because of an underprovision or overprovision of tax atthe time the financial statements are completed. The current and deferred tax balances aredetermined 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 theincome tax return is finally lodged with the ATO. The income tax return may be lodged somemonths after the financial statements are completed.The tax adjustments for prior periods that relate to current and deferred tax recognised in theprofit or loss are brought to account in the profit or loss of the current period.
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