Ex. 7.

5
FlaxtonLtd
Current Tax Worksheet
(for year ended 30 June 2015)

$ $
Accounting profit 40 000
Add:
Donations to political parties (non-deductible) 5 000
Depreciation expense Machinery 15 000
Rent received 10 000
Annual leave expense 5 600 35 600
75 600
Deduct:
Rent revenue 12 000
Annual leave paid 6 500
Depreciation of machinery for tax 18 750 (37 250)
Taxable profit 38 350
Current liability @ 30% $11 505


Adjusting journal entry

30 June 2015
Income Tax Expense (current) Dr 11 505
Current Tax Liability Cr 11 505
(Being recognition of current tax liability)


Part 2

Rent is recognised as income by FlaxtonLtd as it is earned, but will not be taxable income until
the cash is received. In the current year only $10000 of the $12 000 rental income earned has
been received and thus, an adjustment is required to remove $2000 from the accounting profit
when calculating the companys tax liability for the current year. In the worksheet this is
accomplished by adding all rent received in cash to accounting profit and deducting all rent
income recognised. This difference will create a deferred tax liability of $600 ($2000 x 30%)
which will be recognised via the deferred tax worksheet. When the cash is received next year the
company will add $2000 rent to the accounting profit, pay the $600 tax and reverse the tax
liability.






Ex 7.7

Part 1

HADEN LTD
Current Tax Worksheet
(for year ended 30 June 2016)
$ $
Accounting profit 100 000
Add:
Entertainment expense (non-deductible) 2 000
Depreciation vehicles 17 000
Rent received (taxable income) 3 000 22 000
122 000
Deduct:
Rent revenue 2 500
Depreciation vehicle (tax) 25 500 28 000
Taxable income 94 000
Current tax liability (30%) 28 200

The entry to recognise current tax is:

Income Tax Expense (current) Dr 28 200
Current Tax Liability Cr 28 200

Part 2

In part 1, an additional $500 ($3000 2500) was added to accounting profit to determine taxable
profit for the year resulting in an increase in current tax liability of $150 ($500 x 30%). This
adjustment creates a deductible temporary difference which will reverse next year when
accounting profit will be $500 greater than taxable profit but no additional tax will be payable.















Ex 7.18 (Part 2)

The disallowed expense item reduces the carried forward tax losses from $18 400 to $13 900 so
the deferred tax asset relating to the losses must be adjusted.

PART 2
NEBO LTD
Current Tax Worksheet
(for year ended 30 June 2014)

Accounting profit $22 240
Add:
Entertainment expense (non-deductible) $11 100
Carrying amount plant 30 000
Depreciation expense plant 24 000
Doubtful debts expense 8 100
Insurance expense 12 900
Annual leave expense 15 400 101 500
Deduct: 123 740
Government grant (exempt) 3 600
Carrying amount taxation 26 000
Depreciation taxation 28 800
Bad debts written off 6 500
Insurance paid 10 700
Annual leave paid 11 000 (86 600)
Taxable income 37 140
Add back exempt income 3 600
40 740
Less recoupment of tax loss (13 900)
Taxable income 26 840
Current tax liability @ 30% $8 052

Journal entry:

Income tax expense (current) Dr 12 222
Deferred tax asset (tax losses) Cr 4 170
Current tax liability Cr 8 052