Corporate Accounting Systems Journal Entry Adjustments

School: Western Sydney University - Course: CAS 200109 - Subject: Accounting

ACCT3007 Corporate Accounting Systems Autumn Semester Week 5 Tutorial Question Question 1 Textbook Chapter 18 Review Question 22 (p.764) Elwood Ltd has the following deferred tax balances as at 30 June 2023: DTA $1 000 000 DTL$800 000 The above balances were calculated when the tax rate was 30%. On 1 December 2023 the government raises the corporate tax rate to 35%. Required Provide the journal entry to adjust the carry-forward balances of the deferred tax asset and deferred tax liability. (All calculated amounts are to be rounded to the nearest whole dollar; Narrations are required). 1,000,000/0.3 x 0.35 = Question 2 Hope Island Ltd had the following account balances as at 30 June 2022:Deferred tax asset $12,580; Deferred tax liability $20,400; Allowance for doubtful debts $12,000; Provision for Long service leave $27,000. The tax rate at that date was 35%. The following information is for the year ended 30 June 2023:  On 1 April 2023 the company income tax rate decreased to 30% for the 2022-2023 year on- wards. 1

 Accumulated depreciation on plant for tax purposes on 30 June 2023 was $275,000. Accu- mulated depreciation on plant for accounting purposes on 30 June 2023 was $191,000. Plant at cost was 610,000.  Taxable profit for the 2022-2023 year has been calculated to be $702,000.  Allowance for doubtful debts at year ended 30 June 2023 is 15,000. (i)Provide the journal entry to adjust the carry-forward balances of the deferred tax accounts for the change in tax rates (All calculated amounts are to be rounded to the nearest whole dollar; Narrations are required). 12,580/0.35 x 0.3 = 10,783 20,400/0.35 x 0.3 = 17,486 1 April 2023DTL2914 Income tax expense.1,117 DTA1,797 (ii)Using the information on the previous page, complete the deferred tax worksheet below as at 30 June 2023 (All calculated amounts are to be rounded to the nearest whole dollar). 30 June 2023CarryingAmountTax BaseDeductibleTemporaryDifferencesTaxableTemporaryDifferencesIncomeTaxExpenseIncome Tax Payable Assets Accnts Receivable (net) 228,000243,00015,000(15,000) Plant (net)419,000335,00084,00084,000 Liabilities Accnts Payable171,000171,000 Provn for LSL29,000029,000(29,000) Bank loan150,000150,000 Temporary differences at period end44,00084,00040,000 Less: Prior period amounts35,94358,28622,343 Movement for the period8,05725,71417,657 2

Tax affected2,4177,7145,297 Tax on taxable income (702,000 x 0.3)210,600210,600 Income tax adjustments required2,4177,714215,897210,600 O/BAL DTD = 12,580 / 0.35 = 35,943; O/BAL TTD = 20,400 / 0.35 = 58,286 (iii) Prepare journal entries for both the current and deferred tax consequences and for disclosure of deferred tax in the Balance Sheet (Narrations are required): 30 June 2023DTA2,417 Income tax expense215,897 DTL7,714 Income tax payable.210,600 (To recognise current and deferred tax consequences) DTL13,200 DTA13,200 (To offset DTA and DTL for reporting purposes) Question 3 Sunnypark Ltd commenced operations in 2020. In the year ending 30 June 2020 it incurred a loss of $400 000. It is expected that the company will not incur losses again and will generate taxable profit in subsequent years. The profits before tax in the following years are as follows: Year Profit before tax 2021$100 000 2022$155 000 2023$200 000 It is assumed that there are no temporary differences between the carrying values of the company's assets and liabilities and the respective tax bases. The tax rate is 30%. Required: (i)Explain the principle assumption that must be made before any organisation can carry forward a tax loss? Is this assumption satisfied in Sunnypark Ltd's case?