Rattlesnakes Ltd is reviewing its deferred tax for the year. In each of the following situations prepare the end-of-period adjustment journal entries to account for income tax on the initial appearance or reversal of any temporary differences. Explain in each case why particular accounts are affected.

1. The company purchased a depreciable asset at the beginning of the year for $100 000. For accounting purposes, an annual depreciation rate of 20% straight-line is used, whereas for taxation the rate is 30% straight-line.

2. The company’s provision for long-service leave at the beginning and end of the year are $160 000 and $155 000 respectively. In the current year, $20 000 in long-service leave was paid to a long-standing employee.

3. In calculating taxable income, the company has deducted $50 000 of development expenditure incurred at the beginning of the year. For accounting purposes, the $50 000 has been capitalized as an asset and is amortized on a straight-line basis over 5 years. The company is not entitled to any additional deduction above the 100% of costs incurred.

4. The company has an allowance for doubtful debts of $8000 at the end of the year. The balance of the allowance account at the beginning of the year was $5000. In the current period, $10 000 was written off as being uncollectable. The gross amount of accounts receivable at the beginning and end of the year are $62 000 and $60 000 respectively.

5. The company has interest receivable of $10 000 at the end of the year. No interest was receivable at the beginning of the year. Interest income is included in taxable profit only when received.

6. The company has revalued land at the end of the year. The land was revalued during the year from its original cost of $90 000 to a fair value of $150 000.

7. The company revalued plant at the beginning of the year from $400 000 to $500 000. The plant is being depreciated at the rate of 10% per year for accounting purposes and 5% per year for tax purposes.

8. The company has goodwill of $200 000 at the end of the year. The goodwill has a tax base of $Nil.

Answer rating: 100% (QA)

1 Depreciable asset Carrying amount is 80 000 Cost 100 000 Accum Depn 20 000 Tax base 70 000 Cost 100 000 Accum Depn 30 000 The tax base is the future deductible amount for the asset Carrying amount T... View the full answer