PASS for BFA605 Week 8
Activity 1
1, Explain why there are differences between income tax expense and income tax payable?
2, Explain why there are differences between permanent differences and temporary differences?
3, Identify accounts with the two categories, permanent differences and temporary differences
Activity 2
The exercise from Week 7 Argentina Ltd, with items changed. Exam question from 2nd semester 2013 with figures adjusted
One year after the commencement of business, Pistachio Ltd determined its accounting profit before tax for the year ended 30 June 2016 to be $256,700. Included in this profit are the following items:
$ | |
Entertainment expense | 1,700 |
Depreciation expense – buildings | 50,000 |
Depreciation expense – plant | 18,750 |
Doubtful debt expense | 4,100 |
Annual leave expense | 46,000 |
Warranty expense | 17,000 |
Advertising expense | 4,200 |
The company’s Balance Sheet as at 30 June 2016 showed the following assets and liabilities:
$ | $ | |
Assets | ||
Cash | 2,500 | |
Accounts receivable | 18,000 | |
Less allowance for doubtful debts | 600 | 17,400 |
Inventory | 31,600 | |
Prepaid advertising | 4,500 | |
Land | 175,000 | |
Buildings | 1,000,000 | |
Less Accumulated depreciation | 50,000 | 950,000 |
Plant | 150,000 | |
Less Accumulated depreciation | 18,750 | 131,250 |
Liabilities | ||
Accounts payable | 25,000 | |
Provision for annual leave | 10,000 | |
Provision for warranty expenses | 12,000 | |
Loan | 140,000 |
Other information:
- The plant is being depreciated equally over the useful life of 8 years for accounting purposes, but for taxation purposes it is being depreciated using the diminishing balance method at a rate of 25%.
- For accounting purposes the buildings are depreciated on a straight line basis over their useful life of 20 years. For taxation purposes however, Pistachio Ltd have decided to depreciate the buildings at a rate of 5% straight line.
- Bad debts were written off during the year. (How to calculate bad debts?)
- There was one claim made on a warranty during the year, and 10 employees have already taken their long service leave.
- The $1,700 spent (and expensed) on entertainment during the year represents a permanent difference between accounting and taxable profit.
- For Pistachio Ltd, tax deductions are available only when amounts are paid and not as they are accrued.
- The tax rate is 30%.
Required:
a) Clearly show your calculations to identify the temporary differences. [6 marks]
b) Clearly show your calculations to determine income tax expense and income tax payable. [9 marks]
c) Provide the journal entries to account for income tax in accordance with AASB 112. [2 marks]
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| Attribution information | |
|---|---|
| Title: | Student Learning - PASS - BFA605 Week 8 Exercise |
| Source: | https://www.utas.edu.au/health/resources/open-resources/resources/courses/pass/pass-accounting-worksheet |
| Author: | Jennifer Kemp-Smith |
