For the year ended March 31, 2019, the total carrying amount of property, plant and equipment in Candy Limited's statement of financial position is $720,000. Current assets as of the end of 2019 include interest receivables of $10,000. Related interest income will be taxed on a cash basis.

Tangible fixed assets include furniture and computer equipment. The furniture was purchased on April 1, 2016 at a cost of $800,000. The company purchased the computer equipment for $600,000 in 2019.

It is Candy Limited's accounting policy to measure property, plant and equipment at cost less accumulated depreciation. Accounting depreciation is provided on a straight-line basis over the useful life of the asset:

Furniture 5 years Computer Hardware 3 years

Full year depreciation will be provided in the year of purchase and residual value is assumed to be zero.

As of 31 March 2018, the balance of deferred tax accounts in the statement of financial position is as follows:

Deferred tax asset $16,000 (income from inherited tax losses)

Deferred tax liability $96,000

As of March 31, 2019, $800,000 in tax depreciation is allowed for furniture. The tax office allows the cost of any computer equipment to be deducted in full in the year it was purchased. For the year ended March 31, 2019, USD 40,000 tax loss has been calculated. All tax losses will be allowed to offset future profits for tax purposes. As of March 31, 2019, management has estimated taxable profits for future years as follows:

2020 $50,000
2021 $40,000
2022 onwards No forecasts available

Income tax rates announced for 2018 and beyond were 20%.

Part A:

Sea Ltd. started its operations in 2019. The company suffered a tax loss of $150,000 for the year ended December 31, 2019. The company is expected to avoid losses again and to generate taxable profits of $160,000 in the future. The tax rate for 2019 and beyond is 30%.

Necessary:

(a) Provide journal entries to record deferred tax on tax loss in 2019.

(b) Assume that the actual taxable profit for the year ended December 31, 2020 is $40,000, and based on the new information, company management estimates the future taxable profit at December 31, 2021 to be $90,000. Prepare relevant journal entries for 2020.

Answer rating: 100% (QA)

a Journal entries to record deferred tax on tax loss in 2019 1 To recognize deferred tax asset Defer... View the full answer