ACC304 Module 1

Question 1a
* CA = carrying amount, DLT=Deferred Tax liability, ITE=Income tax expense
Data:
Motor vehicle Cost $300,000
Accumulated depreciation Tax
purposes $180,000

Required: a) Calculate the temporary difference.

b) Calculate the deferred tax asset or liability and prepare the journal entry as at 30/6.
Assume a 30% tax rate
Solution:
(a) CA: Accounting Tax base
Plant - Cost $300,000 $300,000
Accumulated
depreciation 50,000 ($180,000)
$250,000 $120,000

As the CA is greater than the tax

base, for tax purposes the asset
will be written off to zero
quicker and hence so will the
depreciation deductions.
(b) Therefore a DTL is raised:

DATE Particulars Debit

30-Jun Income tax expense (ITE) $39,000
Deferred Tax Liability (DTL)
 Carrying Amount: Accounting $250,000

ty and prepare the journal entry as at 30/6.

Temporary difference

$130,000

Credit

$39,000
ACC304 Module 1
Question 1b
* CA = carrying amount, DLT=Deferred Tax liability, ITE=Income tax expense
Data:
Machine Cost $500,000 Carrying Amount: Accounting
Accumulated depreciation
Tax purposes $120,000

Assume a 30% tax rate

Required: a) Calculate the temporary difference.

b) Calculate the deferred tax asset or liability and prepare the journal entry as at 30/6.

Solution:
(a) CA Tax base Temporary difference
Plant - Cost $500,000 $500,000
Accumulated
depreciation 100,000 ($120,000)
$400,000 $380,000 $20,000

As the CA is greater than the

tax base, for tax purposes the
asset will be written off to
zero quicker and hence so will
the depreciation deductions.
(b) Therefore a DTL is raised:

DATE Particulars Debit Credit

30-Jun Income tax expense (ITE) $6,000
Deferred Tax Liability (DTL) $6,000
$400,000
ACC304 Module 1
Question 1c
* CA = carrying amount, DLT=Deferred Tax liability, ITE=Income tax expense, DTA=Deferred Tax Asset
Data:
Tractor Cost $800,000 Carrying Amount: Accounting
Accumulated depreciation Tax
purposes $300,000

Assume a 30% tax rate

Required: a) Calculate the temporary difference.
b) Calculate the deferred tax asset or liability and prepare the journal entry as at 30/6.

Solution:
(a) CA Tax base Temporary difference
Plant - Cost $800,000 $800,000
Accumulated depreciation 400,000 ($300,000)
$400,000 $500,000 ($100,000)

As the tax base is greater than

the CA, for tax purposes the
asset will be written off to zero
at a slower rate than
accounting basis. Therefore a
DTA is raised for future tax
(b) deductions of depreciation:

DATE Particulars Debit Credit

30-Jun Deferred Tax asset (DTA) $30,000
Income tax expense (ITE) $30,000
 $400,000

entry as at 30/6.
($30,000)
ACC304 Module 1
Question 2a

Jones Ltd has provided belowan extract of it's Balance sheet as at 30/6/22:
$
Current assets
Accounts Receivable 500,000
Less: Doubtful debts -45,000
Prepaid insurance

Current Liabilities
Revenue received in advance
Long service leave provisions

Additional information:
Accounting Tax

Depreciation expense for year 30,000 50,000

Assume a 30% tax rate

Required:
a) Calculate the temporary differences
b) Determine any deferred tax accounts and the amounts
c) Prepare the entry to record this temporary difference

Solution:
(a)
CA + Future deductible
amount

Accounts Receivable (net) 455,000 45,000

Prepaid insurance 185,000 0

Revenue received in advance 150,000 0

Long service leave provisions 18,000 18,000

Depreciaton expense 30,000 0

c) Prepare the entry to record this temporary difference

DATE Particulars Debit

30-Jun Deferred Tax asset (DTA) $ 63,900
Deferred Tax liability (DTL)
Income tax expense (ITE)
 $

455,000
185,000

150,000
18,000

-Future assessable Tax base Temporary

amount Difference
b) Bad debts are tax deductible when the debt is
written off and as the company will receive this
benefit in the future, a DTA is recorded.
0 500,000 45,000
Tax effect @ 30% = $13,500

b) A tax deduction was given for the full amount of

the insurance at the time it was paid in cash. Hence
there will be more tax to pay as the entity expenses
0 0 185,000 this asset over time and a DTL is recorded.
Tax effect@ 30% = $55,500

b) The revenue was assessed for tax when received in

cash and will not pay tax on this amount in the future.
The accounting records will allocate this as revenue
0 0 150,000 over time. A DTA is recorded for this tax savings.
Tax effect @ 30% = $45,000
 0 0 -18000 b) Provisions are not deductible until paid.
A tax deduction is available in the future and a
DTA is raised $18,000 @ 30% = $5,400
b) As the tax depreciation is more than the
0 50,000 20,000 accounting depreciation, this will create a DTL

Credit

$ 61,500
$ 2,400
 DTA DTL

13,500

55,500

45,000
 5,400

6,000

$ 63,900 $ 61,500
ACC304 Module 1
Question 2b

Zorro Ltd has provided belowan extract of it's Balance sheet as at 30/6/22:
$
Current assets
Accounts Receivable 800,000
Less: Doubtful debts -40,000
Prepaid rent
Interest Receivable

Non-current assets
Machinery - at cost 100,000
Accumulated depreciation 80,000

Plant - at cost 400,000

Accumulated depreciation 100,000

Current Liabilities
Construction earnings received in advance
ANZ Loan payable
Annual leave provision

Additional information:
Machinery - Accum. Depreciation for tax purposes is: $90,000
Plant - Accum. Depreciation for tax purposes is: $120,000

Required:
a) Calculate the temporary differences
b) Determine any deferred tax accounts and the amounts
c) Prepare the entry to record this temporary difference
Assume a 30% tax rate
Solution:
(a)
CA + Future deductible
amount
Accounts Receivable (net) 760,000 40,000
Prepaid rent 125,000 0

Interest Receivable 40,000 0

Machinery 20,000 10,000

Plant 300,000 20,000

Construction earnings received in advance 250,000 0

ANZ Loan Payable 50,000 0

Annual leave provision 18,000 18,000

c) Prepare the entry to record this temporary difference

DATE Particulars Debit

30-Jun Deferred Tax asset (DTA) $ 92,400
Deferred Tax liability (DTL)
Income tax expense (ITE)
 $

760,000
125,000
40,000

20,000

300,000

250,000
50,000
18,000

-Future assessable Tax base Temporary DTA DTL

amount Difference
0 800,000 40,000 b) Bad debts are tax deductible
when the debt is written off
and as the company will
receive this benefit in the
future, a DTA is recorded.
 Tax effect @ 30% = $40,000 12,000
0 0 125,000 b) A tax deduction was given
for the full amount of the
insurance at the time it was
paid in cash. Hence there will
be more tax to pay as the
entity expenses this asset over
time and a DTL is recorded.

Temporary difference @ 30% =

$37,500
37,500
40,000 0 40,000 b)The CA is greater than the 12,000
tax base and a DTL is created.
The tax office will assess the
interest revenue when it
receives it in cash.

Temporary difference @ 30% =

$12,000
b) CA is greater than tax base
and a DTL is created. The asset
will be written off in less time
for taxation.
20,000 10,000 10,000
Temporary difference @ 30% = 3,000
$3,000

b) CA is greater than tax base 6,000

and a DTL is created. The asset
will be written off in less time
for taxation.
300,000 280,000 20,000
Temporary difference @ 30% =
$6,000

0 0 250,000 b) The revenue was assessed

for tax when received in cash
and will not need to pay tax in
the future. The accounting
records will allocate this as
revenue over time. A DTA is
recorded for this tax savings.

Temporary difference @ 30% =

$75,000
75,000
0 50,000 0 -
 b) Provisions are not
deductible until paid.A tax
deduction is available in the
future and a DTA is raised.
0 0 18,000
Tax deifference@ 30%=
$18,000 @ 30% = $11,400
5,400

$ 92,400 $ 58,500

Credit

$ 58,500
$ 33,900
ACC304 Module 1
Question 3a Revaluation of NCA and tax effects

Revaluation Accumulated
date Cost Depreciation
Machinery 30/6/2022 $500,000 $100,000
Plant 30/6/2022 $1,200,000 $200,000
Tractor 30/6/2022 $350,000 $50,000
Buildings 30/6/2022 $2,000,000 $1,000,000

Required: Assuming a year end of 30/6/2022, calculate the temporary differences and prepare the entries to record the abo
Assume a 30% tax rate
Solution:

Revaluation Accumulated
date Cost Depreciation
Machinery 30/6/2022 $500,000 $100,000
Plant 30/6/2022 $1,200,000 $200,000
Tractor 30/6/2022 $350,000 $50,000
Buildings 30/6/2022 $2,000,000 $1,000,000

Entries:
DATE Particulars Debit
30-Jun Accum. depreciation—machinery $100,000
Machinery
(Write off Accum Dep and
Machinery to CA not Cost)

30-Jun Machinery $40,000

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $12,000

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $40,000

Income tax expense
Revaluation surplus (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—plant $200,000

Plant
 (Write off Accum Dep and
Plant to CA not Cost)

30-Jun Plant $100,000

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $30,000

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $100,000

Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—tractor $50,000

Tractor
(Write off Accum Dep and
tractor to CA not Cost)

30-Jun Tractor $50,000

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $15,000

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $50,000

Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—buidings $1,000,000

Buildings
(Write off Accum Dep and
buildings to CA not Cost)

30-Jun Buildings $100,000

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $30,000

DTL
 (To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $100,000

Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)
 Fair value
$440,000
$1,100,000
$350,000
$1,100,000

he entries to record the above revaluations, including tax effects.

Carrying amount (CA) Fair value Temporary Difference DTL

$400,000 $440,000 $40,000 $12,000
$1,000,000 $1,100,000 $100,000 $30,000
$300,000 $350,000 $50,000 $15,000
$1,000,000 $1,100,000 $100,000 $30,000

Credit

$100,000

$40,000

$12,000

$12,000
$28,000

$200,000
 $100,000

$30,000

$30,000
$70,000

$50,000

$50,000

$15,000

$15,000
$35,000

$1,000,000

$100,000

$30,000
$30,000
$70,000
ACC304 Module 1
Question 3b Revaluation of NCA and tax effects

Acquisition date Cost Useful life

Machinery 30/4/2022 $500,000 10%
Plant 31/12/2021 $1,200,000 20%
Tractor 31/3/2022 $350,000 15%
Buildings 1/6/2022 $2,000,000 2%

Required: Assuming a year end of 30/6/2022, calculate the temporary differences and prepare the entries to record the abo
Assume a 30% tax rate
Solution:

Accumulated
Revaluation date Cost Depreciation
Machinery 30/6/2022 $500,000 $8,333
Plant 30/6/2022 $1,200,000 $120,000
Tractor 30/6/2022 $350,000 $13,125
Buildings 30/6/2022 $2,000,000 $3,333

Entries:
DATE Particulars Debit
30-Jun Accum. depreciation—machinery $8,333
Machinery
(Write off Accum Dep and
Machinery to CA not Cost)

30-Jun Machinery $58,333

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $17,500

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $58,333

Income tax expense
Revaluation surplus (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—plant $120,000

Plant
(Write off Accum Dep and
 Plant to CA not Cost)

30-Jun Plant $920,000

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $276,000

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $920,000

Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—tractor $13,125

Tractor
(Write off Accum Dep and
tractor to CA not Cost)

30-Jun Tractor $13,125

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $3,938

DTL
(To recognise tax expense and DTL)

30-Jun Gain on Revaluation (OCI) $13,125

Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)

30-Jun Accum. depreciation—buidings $3,333

Buildings
(Write off Accum Dep and
buildings to CA not Cost)

30-Jun Buildings $103,333

Gain on revaluation (OCI)
(Revalue to $440,000 FV and recognise gain in OCI)

30-Jun Income tax exp (ITE) $31,000

DTL
(To recognise tax expense and DTL)
30-Jun Gain on Revaluation (OCI) $103,333
Income Tax expense
Revaluation Surpluse (ARS)
(Transfer gain after tax to equity as per AASB116)
 Fair value
$550,000
$2,000,000
$350,000
$2,100,000

e the entries to record the above revaluations, including tax effects.

Temporary
Carrying amount (CFair value Difference DTL
$491,667 $550,000 $58,333 $17,500
$1,080,000 $2,000,000 $920,000 $276,000
$336,875 $350,000 $13,125 $3,938
$1,996,667 $2,100,000 $103,333 $31,000

Credit

$8,333

$58,333

$17,500

$17,500
$40,833

$120,000
$920,000

$276,000

$276,000
$644,000

$13,125

$13,125

$3,938

$3,938
$9,188

$3,333

$103,333

$31,000
$31,000
$72,333