Entity A starts a business in Hong Kong on 1 January 2019 and the end of the reporting period is 31 December.

Entity A uses the straight-line depreciation method in accordance with the HKAS 16. The depreciation expense is $400,000 per year. The tax depreciation allowance is $500,000 per year. The business entertainment expense can only be 30% deductible for tax purposes in 2019 and 2020.

In 2019, the impairment loss for trade receivables of $58,000 is not tax-deductible but it will be deducted later when it is not collected. In 2020, it keeps non-deductible in tax.

On 31 December 2019, Entity A estimates that only 80% of the tax loss is expected to be utilized against future taxable profit. The tax rate for 2019 is 30%.

Luckily, the business performance of Entity A on 31 December 2020 is better than before and Entity A also restores its confidence of performance to the coming future. The tax rate for 2020 is the same as in 2019.

In order to support the business environment positively, on 28 February 2021, the profits tax rate is announced to be reduced from 30% to 15% by the government which is effective from 1 January 2021.

The financial statement statements for 2019 and 2020 of Entity A are listed as below:

Entity A
Statement of Profit and Loss for the Year 2019
	$
Sales	2,250,000
Cost of sales	1,520,000
Gross profits	730,000
Sundry expense	289,000
Impairment on trade receivables	58,000
Business entertainment expense	365,000
Depreciation	400,000
Loss for the year	(382,000)
Entity A
Statement of Profit and Loss for the Year 2020
	$
Sales	6,500,000
Cost of sales	2,800,000
Gross profits	3,700,000
Sundry expense	485,000
Business entertainment expense	589,000
Depreciation	400,000
Profit before tax	2,226,000

Entity A pays the current tax on 31 March if necessary.

REQUIRED:

Prepare all journal entries of Entity A on 31 December 2019, 31 March 2020, 31 December 2020, 1 January 2021, and 31 March 2021 in accordance with HKAS 12 Income Taxes.

ACCOUNTS FOR INPUT:

| Current tax liability | Income tax expense | Deferred tax asset | Deferred tax liability |

| Over-provision of tax | Under-provision of tax | Bank | Retained earnings | No entry |

 

Transcribed Image Text:

Date 31-Dec- 19 31-Dec- 19 31-Dec- 19 31-Mar- 20 31-Dec- 20 31-Dec- 20 31-Dec- 20 31-Dec- 20 1-Jan- 21 1-Jan- 21 31-Mar- 21 Account Name Debit ($) Credit ($) Hints For Entries and Sequence Related to Principle 3. Related to PPE. Principle 1 and 2. Related to Principle 3. An Asset. Judge Dr/Cr Side. Input Amount Only. Related to PPE. Principle 1 and 2. An Expense. Date 31-Dec- 19 31-Dec- 19 31-Dec- 19 31-Mar- 20 31-Dec- 20 31-Dec- 20 31-Dec- 20 31-Dec- 20 1-Jan- 21 1-Jan- 21 31-Mar- 21 Account Name Debit ($) Credit ($) Hints For Entries and Sequence Related to Principle 3. Related to PPE. Principle 1 and 2. Related to Principle 3. An Asset. Judge Dr/Cr Side. Input Amount Only. Related to PPE. Principle 1 and 2. An Expense.

Answer rating: 100% (QA)

Entity As journal entries for 2019 and 2020 are as follows 31 December 2019 Dr Loss ... View the full answer