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Question about Deferred Tax Assets
04-28-2010, 01:06 AM
Post: #1
Question about Deferred Tax Assets
i have 2 questions abt tax. im kinda in a rush so i really appreciate if sb could help me
1/ this question is about deferred tax asset
On 30 June 2009, the balance of the provision for warranty expenditure in Myer Ltd’s accounts was $130,000. During the year ended 30 June 20010, an additional $210,000 for warranty expenditure, and paid warranty expenditure of $180,000. For income tax purposes, warranty expenditure is deductible when it is paid

with this transaction here is my treatment
first i add 210,000 from profit before tax and deduct 180,000 to get taxable profit. then 2 journal entry is made

dr income tax expense 39,000
cr Deferred tax asset 39,000
reverse of 2009 deferred tax asset (130,000 * .3

Dr deferred tax asset 48,000
Cr income tax expense 48,000
Deferred tax asset 4 2010 (210-(180-130))*.3

I just wanna ask whether my treatment for the above problem is correct

2/ the second question is about permanent different bw taxable income and accounting income
Here is the problem During the year ended 30 June 20010, entertainment costs of $100,000. For income tax purposes, entertainment expenses are not deductible

So i just add 100,000 to profit before tax to convert to taxable income but my lecturer said it's a trick anf it's about permanent different. i hav checked AASB 112 but i cant find anything about permanent different. so i really wanna ask about the journal entry as well as some info about permanent diffent.

Many thanks in advance
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04-29-2010, 04:15 PM
Post: #2
 
Opening provision for warranty is $ 130,000 where as closing provision is $ 160,000

You need to calculate deferred tax on amounts reflected in balance sheet, you simply compare their carrying amounts with their respective tax base. In this case tax base for provision for warranty is zero. So As at June 30, 2009 your deferred tax asset would be 39,000. Entry would be
Deferred tax asset Dr. 39,000 (B/S)
Deferred tax Cr. 39,000 (P%L)

On June 30, 2010 your carrying amount is 160,000 so calculating deferred tax @ 30% (rate given in your question). Your deferred tax asset would be $ 48,000. Entry would be
Deferred tax asset Dr. 9,000 (B/S)
Deferred tax Cr. 9,000 (P&L)

As for second question its a question of inadmissible expense, there really is no journal entry. It is just for tax calculation, if anything inadmissible expenses are reflected in your tax charge reconciliation only.

Your second question though is not clear to me, so maybe the answer I gave is not what you were looking for.

Regards
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04-29-2010, 04:36 PM
Post: #3
 
1. Using income statement liability method Yes solution is correct except for you are using income tax expense account instead of deferred tax expense so entries will be

Deferred Tax Exp to Deferred Tax assets and vise versa. Income tax expense could be debited for current year tax not for deferred tax. Further, IAS-12 requires balance sheet liability method for deferred tax calcs.

2. IAS-12 revised requires to calculate deferred tax on all temporary differences except for where tax base and carrying value of asset or liability is different at the time of initial recognition, However there are certain other exceptions too.IAS-12 did not define permanent differences. For calculating your current taxation your calcs are ok.
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04-29-2010, 04:38 PM
Post: #4
 
His second entry is incorrect as he is debiting Deferred tax asset with 48,000 instead of 9,000.
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04-29-2010, 04:49 PM
Post: #5
 
Dear Numan he is reversing last year Deferred Tax asset as full and creating a new asset as full e.g

Reversal
DT Exp 39,000
DTA 39,000

New

DTA 48,000
DTE 48,000

Net impact

DTA 9,000
DTE 9,000
Same is suggested by you, so he is also correct i think
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