The draft (extract) statement of financial position of Aftersell Ltd as at 30 June 2020 and 30 June 2021 showed the following: 30.6.202130.6.2020Assets Plant900,000900,000Less: Accumulated depreciation270,000180,000 630,000720,000Insurance19,00013,000Deferred tax asset?2,700Liabilities Rent revenue received in advance6,0009,000Deferred tax liability?51,900 Accounting depreciation for plant is at 10% per annum and the tax depreciation for plant is 20% per annum. Aftersell Ltd has one (1) plant only and it was purchased on 1 July 2018. On the basis of the above information, what are the journal entries required to record the deferred tax adjustment for the year ended 30 June 2021 in accordance with the requirements of AASB112 Income Taxes?
Question
The draft (extract) statement of financial position of Aftersell Ltd as at 30 June 2020 and 30 June 2021 showed the following: 30.6.202130.6.2020Assets Plant900,000900,000Less: Accumulated depreciation270,000180,000 630,000720,000Insurance19,00013,000Deferred tax asset?2,700Liabilities Rent revenue received in advance6,0009,000Deferred tax liability?51,900 Accounting depreciation for plant is at 10% per annum and the tax depreciation for plant is 20% per annum. Aftersell Ltd has one (1) plant only and it was purchased on 1 July 2018. On the basis of the above information, what are the journal entries required to record the deferred tax adjustment for the year ended 30 June 2021 in accordance with the requirements of AASB112 Income Taxes?
Solution
To calculate the deferred tax adjustment for the year ended 30 June 2021, we need to follow these steps:
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Calculate the difference between accounting depreciation and tax depreciation: The accounting depreciation rate is 10% and the tax depreciation rate is 20%. The difference between these rates is 10%. Apply this difference to the plant's cost to find the temporary difference. 10% of 90,000.
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Calculate the deferred tax liability: The deferred tax liability is calculated by applying the tax rate to the temporary difference. Assuming a tax rate of 30% (this rate may vary depending on the jurisdiction), the deferred tax liability would be 30% of 27,000.
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Record the deferred tax adjustment: The deferred tax adjustment is the difference between the deferred tax liability at the end of the current year and the deferred tax liability at the end of the previous year. In this case, the deferred tax liability at the end of 30 June 2021 is 51,900. So, the deferred tax adjustment is 51,900 = -$24,900.
The journal entries to record the deferred tax adjustment would be:
- Debit (decrease) Deferred Tax Liability: $24,900
- Credit (decrease) Income Tax Expense: $24,900
This journal entry reduces the deferred tax liability and the income tax expense by the amount of the deferred tax adjustment.
Please note that this is a simplified calculation and actual tax calculations can be more complex, depending on the specific tax laws and regulations in your jurisdiction. Always consult with a tax professional or accountant for accurate tax calculations.
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