Question 3

Current tax worksheet and entries for current and deferred tax

At 30 June 2016, Upmarket Ltd had the following deferred tax balances:

Deferred tax liability Deferred tax asset

$18 000 15 000

Upmarket Ltd recorded a profit before tax of $80 000 for the year to 30 June 2017, which included the following items:

Depreciation expense plant Doubtful debts expense Long-service leave expense

$7 000 3 000 4 000

For taxation purposes the following amounts are allowable deductions for the year to 30 June 2017:

Tax depreciation plant Bad debts written off

$8 000 2 000

Depreciation rates for taxation purposes are higher than for accounting purposes. A corporate tax rate of 30% applies.

Required

A. Prepare a current tax worksheet to determine the taxable income for the year to 30 June 2017.

B. Determine by what amount the balances of the deferred liability and deferred tax asset will increase or decrease for the year to 30 June 2017 because of depreciation, doubtful debts and long-service leave.

C. Prepare all journal entries to account for income tax assuming recognition criteria are satisfied.

D. What are the balances of the deferred tax liability and deferred tax asset at 30 June 2017?