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Company Accounting 5e Solutions Manual
Peter Jubb Stephen Haswell Ian Langfield-Smtih
Chapter 10
Income tax
10.1 Distinguish the following terms: accounting profit, assessable
income, allowable deductions and taxable income.
The terms are discussed on page 234:
Accounting profit: The profit or loss reported in financial reports. It is the difference between
the revenues and expenses recognised in the comprehensive profit statement for the reporting
period. Recognition depends on the criteria in the Framework and the requirements of various
accounting standards. This should not be confused with pre-tax accounting profit (loss).
Pre-tax accounting profit (loss): Also called profit before (income) tax expense (revenue). It
is the difference between the revenues and expenses (other than income tax expense or
income tax revenue) recognised in the comprehensive profit statement of the reporting period.
Recognition, excluding income tax, also depends on the criteria in the Framework and the
requirements of various accounting standards. It is called accounting profit in AASB 112, and
can be described as the profit or loss before income tax, a term to be contrasted with taxable
income – the amount on which income tax is determined under Australian income tax rules
(called taxable profit or tax loss in AASB 112).
Assessable income: Equivalent, under income tax legislation, of revenue (see glossary). It is
sometimes referred to as tax revenue, that is revenue for taxation purposes. This meaning of
tax revenue must not be confused with a negative income tax expense (the second meaning
given in the glossary) (in AASB 112 the term tax income is used).
Allowable deduction: Equivalent, under income tax legislation, of an expense (see glossary).
It is called a tax deduction in AASB 112. It can also be described as a tax expense, which
must not be confused with income tax expense (called tax expense in AASB 112).
Taxable income: Under Australian taxation rules, the profit determined in accordance with
those rules. A term to be contrasted with pre-tax accounting profit (see glossary). In this
context, ‘taxation’ is limited to income tax and taxes that are similar to income tax such as
capital gains tax.
10.2 Explain how differences arise between taxable income and accounting
profit.
The main difference is that taxable income does not include an equivalent of income tax expense
(revenue) whereas accounting profit does include it. However, pre-tax accounting profit can differ
from taxable income for the reasons listed on pages 236–238 – particularly table 10.1. Recall that in
our general discussion we use the term income tax expense rather than tax expense, but when
dealing with AASB 112, for simplicity we use the term tax expense that is adopted in that standard.
Copyright © 2010 Peter Jubb, Stephen Haswell and Ian Langfield-Smith Version 5.0
Chapter 10: Income tax 2
Accounting profit is determined in the accounting records as:

revenues – expenses (amounts recognised as revenues and expenses in the income statement)
Some items of revenue and expense are, under specific accounting standard requirements, excluded
from the profit or loss statement – they are recognised as other comprehensive profit. The income
tax expense included in a profit or loss statement reflects only those items of revenue or expense
that are included in that profit or loss statement. It is important to remember that here we are
discussing the general nature of income tax in Australia, not the requirements of AASB 112, so we
use the term income tax. In Australia the income tax assessment is either positive or zero, so there is
no such thing as income tax revenue – tax losses and credits cannot result in a negative amount of
tax. Also, the accounting profit does not include amounts excluded from comprehensive profit by
AASB 132.35 – that are deducted from equity instead. These excluded expenses related to
transactions with equity holders in their capacity as equity holders (see chapters 4 and 12).
Taxable Income is determined for tax purposes as:

assessable income – allowable deductions
Tax payable is calculated on this income figure.
Differences arise because items of revenue and expense which are recognised for accounting
purposes are different (in terms of deductibility and assessability and the timing thereof, and the
locus of recognition) from those applicable for tax purposes. These differences can be described as
timing differences (ones that relate to timing) and permanent differences (that relate to deductibility
or assessability and how recognised). Locus of recognition is concerned with whether items of
revenue or expense are included in determining period profit or loss, or are recognised as other
comprehensive profit, or when AASB 132.35 applies are recognised as a deduction from equity.
10.3 List four examples of common causes for differences between taxable
income and accounting profit.
Common examples are listed in table 10.1 on page 237. Some additional differences are noted in
example 10.2. Generally, for tax purposes a cash basis rather than an accrual basis is adopted;
however, there are some important exceptions, for example depreciable assets, sales revenue and
wages and salaries, which are recognised on an accrual basis.
10.4 What is a deductible temporary difference? Give two examples of

deductible temporary differences.
This term is defined in the glossary as follows:
Deductible temporary differences: Under the balance sheet method, a temporary difference
between the carrying amount of an asset or liability in the balance sheet and its tax base that
will result in amounts that are deductible in determining taxable profit (tax loss) of future
periods – that is, decrease (increase) the tax payable – when the carrying amount of the asset
or liability is recovered or settled (in a future reporting period). (AASB 112.5)
A comprehensive list of examples can be found in Appendix A of AASB 112, which should be
consulted for a full explanation. Note that these examples are generic and some may be inapplicable
in Australia.
Examples of circumstances creating deductible temporary difference include:

 Accrued expenses that are only recognised as an allowable deduction when cash is paid at a
later time (commonly employee entitlements – annual leave and long service leave – warranty
expenses). Also estimated uncollectible debts.
 When accelerated depreciation is used for accounting purposes but not for tax purposes.
 When the impairment of an asset is recognised – write-down to recoverable amount under
AASB 137 or net realisable value under AASB 102.
10.5 What is a taxable temporary difference? Give two examples of taxable

temporary differences.
This term is defined in the glossary as follows:
Taxable temporary difference: Under the balance sheet method, temporary differences that
will result in taxable amounts in determining taxable profit (tax loss) of future periods – that
is, produce an increase (decrease) in the income tax payable (recoverable) – in future
reporting periods when the carrying amount of the asset or liability is recovered or settled.
A comprehensive list of examples can be found in Appendix 1 of AASB 112, which should be
consulted for a full explanation. Note that these examples are generic and some may be inapplicable
in Australia.
Examples of taxable temporary difference include:

 When interest revenue is accrued for accounting purposes but recognised as assessable
income when the interest is received at a later time.
 Accelerated depreciation of non-current assets used for taxation purposes.
 Research and development expenditure capitalised for accounting purposes but immediately
deducted for taxation purposes.
 When depreciation of a particular asset will never be an allowable deduction (note that when
the conditions in AASB 112.22(c) are satisfied, recognition of a DTL for such temporary
difference is prohibited). The exception in AASB 112.22(c) is based on there being no impact
on taxable income, thus any profit or loss on disposal must not be an allowable deduction or
assessable income.
 For assets accounted for using the revaluation model under AASB 116 – any upward
revaluation of such assets.
 Amortisation of goodwill where goodwill amortisation is never an allowable deduction
(however, AASB 112 prohibits recognition of a DTL).
10.6 Under AASB 112, three aspects of tax expense are dealt with: current
tax expense, deferred tax expense and tax expense. Explain the
meaning of each term and the relationship between them.
The terms deferred tax expense and tax expense are defined in the glossary as follows:
Deferred tax expense (revenue):

Under the balance sheet method, the sum of:
1 deferred tax liability or deferred tax asset that is first recognised in the current reporting
period; and
2 for deferred tax liabilities and deferred tax assets first recognised in prior reporting
periods, changes in their amount occurring in the current reporting period (excludes
those arising from translation of deferred tax liabilities and assets of foreign operations).
Tax expense (tax revenue): The aggregate amount included in the determination of profit or
loss for the period in respect of current income tax and deferred income tax. Tax expense
(revenue) comprises current tax expense (current tax revenue) and deferred tax expense
(deferred tax revenue). (AASB 112.5, AASB 112.6)
Since the components of the tax expense (revenue) are allocated to either period profit or loss or to
other comprehensive profit (and sometimes as a deduction from equity when required by AASB
132.35), the tax expense (revenue) has the same allocation.
Current tax expense (revenue) is not included in the glossary and it is not defined in AASB 112.
However, it is clear from AASB 112.6 that current tax expense (revenue) is the expense (revenue)
that corresponds to current tax, and current tax is defined as ‘the amount of income taxes payable
(recoverable) in respect of the taxable profit (tax loss) for a period’. It is the amount of income tax
payable (refundable) in respect of the taxable income for a reporting period. The amount payable
(refundable) equals the taxable amount (tax loss) multiplied by the tax rate. Therefore, it must be
the amount of the expected income tax assessment and the expected income tax payable for the
reporting period. Under Australian income tax rules income tax refunds (other than when
instalments paid exceed income tax payable) occur rarely.
The definition of tax expense (revenue) explains the relationship between the terms.
10.7 ‘Items recognised as other comprehensive profit do not impact on the

period profit or loss so any associated income tax also will not affect
period profit or loss.’ Is this statement correct? If so, what
implications – if any – are there to the relationship between current tax
expense and the amount of income tax expected to be assessed in
respect of the period? Give reasons to support your position.
Yes, the statement is correct. Under AASB 101.90 ‘An entity shall disclose the amount of income
tax relating to each component of other comprehensive income, including reclassification
adjustments, either in the statement of comprehensive income or in the notes.’
Under AASB 112 current tax expense is the amount of tax payable for the period, and it is equal to
the amount of current tax. The current tax is defined as ‘the amount of income taxes payable
(recoverable) in respect of the taxable profit (tax loss) for a period’, where taxable profit is ‘the
profit (loss) for a period, determined in accordance with the rules established by the taxation
authorities, upon which income taxes are payable (recoverable)’ (AASB 112.5). Since income tax
rules do not distinguish between items that, for accounting purposes, are either included in period
profit or loss or recognised as other comprehensive profit, the current tax expense apparently
corresponds to the amount of income tax expected to be assessed for a period. The definition of
current tax also includes amounts recognised as a deduction from equity under AASB 132.35
(discussed in chapters 4 and 12). This situation is made clear in AASB 112.58, which provides:
Current and deferred tax shall be recognised as income or an expense and included in profit or
loss for the period, except to the extent that the tax arises from:
(a) a transaction or event which is recognised, in the same or a different period, outside profit
or loss, either in other comprehensive income or directly in equity (see paragraphs 61A to
65); or
(b) a business combination (see paragraphs 66 to 68).
This means that current tax is not solely attributable to period profit or loss.
10.8 What is the conceptual basis of tax-effect accounting? Do you agree

or disagree that this basis is reasonable?
The conceptual basis of tax effect accounting is described briefly on pages 240–242, and our
evaluation is on pages 262–264.
The conceptual basis of the balance sheet method of tax effect accounting is said to be the need to
recognise the future tax consequences of events and transactions recognised in the reporting period
as reflected in the balance sheet. It results from the carrying amount of an asset or a liability
differing from its tax base. It is assumed that, whenever there is a difference between the carrying
amount and tax base, we have a temporary difference and must recognise a deferred tax asset
(DTA) if it is a deductible temporary difference and a deferred tax liability (DTL) if it is a taxable
temporary difference. (Although this is the conceptual basis for the treatment in AASB 112, in
some circumstances the standard prohibits the recognition of a DTA or a DTL notwithstanding the
presence of a temporary difference.)
It can be questioned if DTLs meet the definition of a liability under the Framework (see chapter 3),
as it is doubtful that the entity is under a present obligation. Also, the mandatory recognition of
DTLs despite the recognition criteria in the Framework undercuts the conceptual foundations, as do
the numerous exceptions to the recognition of DTLs (for example, those arising from non-
deductible goodwill). For DTAs there is doubt about both the existence of the requisite past
transaction or event and the ability to control the future economic benefits comprising the DTA, as
well as problems in the application of the Framework recognition criteria (which are substantially
the same as those in AASB 112).
10.9 Is the recognition of deferred tax assets under AASB 112 consistent
with the definition and recognition criteria of assets in the
Framework? Give reasons to support your answer.
We do not believe that the recognition of DTAs is consistent with the definition and recognition
criteria for assets under the Framework. First, it is doubtful that the entity has control of the future
economic benefits comprising the asset. Any control is limited – while others can be excluded from
participating in the benefits, it is impossible to transfer any future economic benefit to another
entity. The only exception is the ability to transfer tax losses within wholly owned groups. While
severability is not critical, its absence may indicate an absence of control. Usually when an asset is
not capable of being severed on its own, it will be capable of being severed as part of an operation
or sub-entity (for example, goodwill); however this is not the case for DTAs. It is also questionable
whether the recognition criteria are satisfied – since there is a condition precedent to the ability to
obtain the future economic benefits (the existence of future assessable amounts). In the terminology
of AASB 137 we have a contingent asset, not a recognised asset.
10.10 Is the recognition of deferred tax liabilities under AASB 112 consistent
with the definition and recognition criteria of liabilities in the
Framework? Give reasons to support your answer.
We do not believe that the recognition of DTLs is consistent with the definition and recognition
criteria for liabilities under the Framework. An essential element of the liability definition is that a
liability be a present obligation to make a future sacrifice of economic benefits. DTLs are not
present obligations to a third party – an obligation will arise only when (a) future assessable income
is earned, and (b) its amount exceeds the then available allowable deductions. Therefore, to use the
terminology in AASB 137 we have a contingent liability, not a liability warranting recognition.
Under AASB 112, recognition of DTLs does not depend on the recognition tests of the Framework
– if the definition of DTL is satisfied, they must be recognised regardless of the probability, except
if there is an express prohibition (for example, the one in respect of non-deductible goodwill).
10.11 Explain how a tax loss may be carried forward to a future year.
The carrying forward of tax losses is discussed on pages 260–261. In substance, under Australian
income tax rules, if an entity has a negative taxable income (a tax loss) it can claim a deduction in
subsequent reporting periods equal to the tax losses. Thus a carry forward tax loss can be recouped
(an allowable deduction is obtained) over one or more subsequent reporting periods.
10.12 ‘Tax losses cannot possibly give rise to an asset. The recognition of
deferred tax assets in such circumstances is misleading.’ Do you
agree with this statement? Provide arguments to support your
position. In answering this question refer to any relevant provisions of
the conceptual framework.
For carry forward tax losses, does the entity have control of the future economic benefits
comprising the DTA? If there is no control, the asset definition is not satisfied. Any control of the
DTA is limited – while others can be excluded from participating in the benefits, it is impossible to
transfer any future economic benefit to another entity – it is not severable. While severability is not
critical to the presence of control, its absence may indicate an absence of control. It may be that for
some but not all DTAs, the requisite control can be established (this is discussed in the next
paragraph). Usually when an asset is not capable of being severed on its own, it will be capable of
being severed as part of an operation or sub-entity (for example, goodwill); however this is not the
case for DTAs. In limited circumstances a DTA is severable through the ability to transfer tax
losses within wholly owned groups.
However, unlike other DTAs, for carry-forward tax losses we have a legal right to claim a
deduction in future periods – for most other DTAs there is no current legal right. For example, for
doubtful debts and warranty claims, a legal right to make a deduction only arises when we have
established that a particular debt cannot be recovered or a warranty claim is satisfied. Is this
sufficient to make a difference? In these cases both the existence of the right and its amount are
contingent on future events. For DTAs arising from tax losses, the existence is not contingent,
however, its amount is contingent on future events (the earning of sufficient future taxable income
against which to offset the loss). In these circumstances it is questionable whether the recognition
criteria are satisfied – since there is a condition precedent to the ability to obtain the future
economic benefits (the existence of sufficient future assessable amounts). In the terminology of
AASB 137 we have a contingent asset rather than a recognised asset.
10.13 Explain the difficulties in using the recognition criteria in the

Framework to support the requirements of AASB 112.
Problems arise with both the definitions of liability and asset under the Framework and the
recognition criteria established in the Framework. (These aspect and other issues are discussed on
pages 262–264).
The main problem is in establishing that DTAs satisfy the recognition criteria for assets and DTLs
satisfy the recognition criteria for liabilities. Under AASB 112 recognition of DTLs does not
depend on the recognition tests in the Framework – if the definition of DTL is satisfied, they must
be recognised. For DTAs, the recognition criteria in AASB 112 are broadly consistent with those in
the Framework. In the case of DTAs, is it correct to say that there is a future economic benefit that
is controlled by the entity? Any control is limited – while others can be excluded from participating
in the benefits, it is impossible to transfer any future economic benefit to another entity. The only
exception is the ability to transfer tax losses within wholly owned groups. In the case of DTLs, the
main issue is whether they impose a present obligation to make a future sacrifice of economic
benefits. In our view DTLs are prospective obligations that will only become present obligations if
certain conditions are met – for instance, the entity earning sufficient profits in relevant future
periods. Arguably, DTAs and DTLs are not assets and liabilities but represent, respectively,
contingent assets and contingent liabilities.1 (See AASB 137 and discussion in chapter 9.)
10.14 Differences in pre-tax accounting profit and taxable income
Schedules for Kelly Limited (a) and (b):

Year ended 30 June
20X2 20X3 20X4 20X5 Total
$ $ $ $ $
1 Revenue less Other expenses 10 000 20 000 40 000 60 000 130 000
Accounting purposes
2 Travel expense (2 000) (3 000) (2 000) (4 000) (11 000)
3 Depreciation at 25% (6 000) (6 000) (6 000) (6 000) (24 000)
1–(2+3) Pre-tax accounting profit 2 000 11 000 32 000 50 000 95 000
Tax purposes
4 Travel expense – – – – –
5 Depreciation at 50% (12 000) (12 000) – – (24 000)
6=1–(4+5) Taxable income (2 000) 8 000 40 000 60 000 106 000
7= 6x30% Income tax payable @ 30% – 2 400 12 000 18 000 32 400

Note: Although the taxable income sums to $106 000, the total income tax payable is based on the sum of positive
taxable income, that is $108 000 at 30% = $32 400. No allowance has been given to the tax loss in
accordance with the instructions for part (b).
1 Here we have used terminology in AASB 137.

10.15 Differences in pre-tax accounting profit and taxable income
Schedules for Houghton Limited (a) and (b):

Year ended 30 June
20X4 20X5 20X6 20X7 Total
$ $ $ $ $
1 Revenue less Other expenses 500 000 600 000 700 000 660 000 2 460 000
Accounting purposes
2 Research and development – – – – –
3 Depreciation at 10% (90 000) (90 000) (90 000) (90 000) (360 000)
1–(2+3) Pre-tax accounting profit 410 000 510 000 610 000 570 000 2 100 000
Tax purposes
4 Research and development (312 500) – – – (312 500)
5 Depreciation at 20% (180 000) (180 000) (180 000) (180 000) (720 000)
6=1–(4+5) Taxable income 7 500 420 000 520 000 480 000 1 427 500
7= 6x30% Income tax payable @ 30% 2 250 126 000 156 000 144 000 428 250
EOP Accumulated depreciation for tax1 360 000 540 000 720 000 900 000
1 At the beginning of the 20X4 reporting period the asset had been depreciated for one year for tax purposes ($180 000 = $900 000 ÷ 5),
therefore at the end of the reporting period the asset has been depreciated for two years and accumulated depreciation is $360 000
(= $180 000 x 20).
10.16 Tax effect accounting: Simple
(a) Schedules for Tahir Ltd:

Year ended 30 June
20X0 20X1 20X2 Total
$ $ $ $
1 Revenue less other expenses 35 000 49 000 26 000 110 000
Accounting purposes
2 Depreciation expense 16 000 16 000 16 000 48 000
3=1–2 Pre-tax accounting profit 19 000 33 000 10 000 62 000
Tax purposes
4 Depreciation expense 24 000 24 000 – 48 000
5=1–4 Taxable income 11 000 25 000 26 000 62 000
6=5x30% Income tax payable @ 30% 3 300 7 500 7 800 18 600

7=6 Current tax expense 3 300 7 500 7 800 18 600
(b) Deferred tax schedule and journal entries for Tahir Ltd using balance sheet method:
Calculation of the carrying amount and tax base. Annual depreciation is $16 000 ($48 000/3) for accounting purposes and $24 000 for tax purposes
($48 000/2) and:
Carrying
amount Tax base
Cost 48 000 48 000
30 June 20X0 depreciation 16 000 24 000
30 June 20X0 balance 32 000 24 000
30 June 20X1 balance 16 000 0
30 June 20X2 depreciation 16 000 0
30 June 20X2 balance 0 0
EOP Temporary differences EOP SOP Deferred tax Other

expense comprehensive Profit or loss
CA TB Taxable Deductible DTL DTA DTL DTA (revenue) profit statement
Machine
1 July 20W9 48 000 48 000 0 0 0 0
30 June 20X0 32 000 24 000 8 000 0 2 400 0 0 0 2 400 0 2 400
30 June 20X1 16 000 0 16 000 0 4 800 0 2 400 0 2 400 0 2 400
30 June 20X2 0 0 0 0 0 0 4 800 0 (4 800) 0 (4 800)
0 0 0
20X0
30 June Dr Current tax expense 3 300
Cr Income tax payable 3 300
Record current tax expense and income tax payable for financial
year ended 30 June 20X0 (see part (a))
Dr Deferred tax expense 2 400

Cr Deferred tax liability 2 400
Record deferred tax expense and increase (from zero) in
deferred tax liability for financial year ended 30 June 20X0
The disclosure requirements of AASB 112 require separate aggregation of four components of tax
expense (revenue); current tax expense, current tax revenue, deferred tax expense and deferred tax
revenue. The best way to do so is through separate ledger accounts for the components. If at the end
of the reporting period the balances of those accounts are transferred to the tax expense (revenue)
account, the journal entry would be.
Dr Tax expense (revenue) 5 700

Cr Current tax expense 3 300
Cr Deferred tax expense 2 400
Transfers balances of current tax expense and deferred tax
expense to tax expense (revenue)account
20X1

Record deferred tax expense and increase in deferred tax
liability for financial year ended 30 June 20X1

20X2
Dr Deferred tax liability 4 800

Cr Deferred tax revenue 4 800
Record deferred tax revenue and decrease in deferred tax
liability for financial year ended 30 June 20X2

Dr Deferred tax revenue 4 800
revenue to tax expense (revenue) account
Total tax expense recognised over the three years is $18 600, the same as that recognised under the
tax payable method.
If no distinction is made between current tax expense and deferred tax expense in the journals and
ledgers,1 the journal entries are:
20X0
30 June Dr Tax expense (revenue) 5 700
Record tax expense, increase in deferred tax liability and income
tax payable for financial year ended 30 June 20X0
20X1
Record tax expense, increase in deferred tax liability and income
tax payable for financial year ended 30 June 20X1
20X2
Record tax expense, decrease in deferred tax liability and
income tax payable for financial year ended June 20X2
1 In the profit or loss statement we have a line item for tax expense (revenue), the distinction
between current tax and deferred tax is important only for note disclosures made under AASB
112.80. For other comprehensive profit, the related income tax expense is disclosed either in the
comprehensive profit statement or the notes to the financial statements; again no distinction is
made between current tax and deferred tax. While we believe that the two components should be
separated in the journals and ledgers, it is not strictly necessary for the implementation of AASB
112.
10.17 Tax effect accounting: Simple
(a) Schedules for Craig Ltd:

Year ended 30 June
20X0 20X1 20X2 Total
$ $ $ $
1 Revenue less other expenses 10 000 11 000 27 000 48 000
Accounting purposes
2 Long service leave expense 4 000 4 000 6 000 14 000
3=1-2 Pre-tax accounting profit 6 000 7 000 21 000 34 000
Tax purposes
4 Long service leave expense – – 14 000 14 000
5=1-4 Taxable income 10 000 11 000 13 000 34 000
6=5x30% Income tax payable @ 30% 3 000 3 300 3 900 10 200

7=6 Current tax expense 3 000 3 300 3 900 10 200
(b) Deferred tax schedule and journal entries for Craig Ltd:
Carrying
Calculations: Amount Tax Base
Long service leave provision
30 June 20X0 expense 4 000 0
30 June 20X2 payment 14 000 0
(6 000) 0
EOP Temporary differences EOP SOP Deferred tax Other

expense comprehensive Profit or loss
Long service leave
1 July 20W9 0 0 0 0 0 0
30 June 20X0 4 000 0 0 4 000 0 1 200 0 0 (1 200) 0 (1 200)
30 June 20X1 8 000 0 0 8 000 0 2 400 0 1 200 (1 200) 0 (1 200)
30 June 20X2 0 0 0 0 0 0 0 2 400 2 400 0 2 400
0 0 0
20X0
Dr Deferred tax asset 1 200

Record deferred tax revenue and increase (from zero) in
deferred tax asset for financial year ended 30 June 20X0

revenue to tax expense (revenue)account
20X1

Record deferred tax revenue and increase in deferred tax asset
for financial year ended 30 June 20X1

20X2

Cr Deferred tax asset 2 400
Record decrease in deferred tax asset and the deferred tax
expense for year ended 30 June 20X2

If no distinction is made between current tax expense and deferred income tax expense in the
journals and ledgers,1 the journal entries are:
20X0
Record tax expense (revenue), increase in deferred tax asset
and income tax payable for financial year ended 30 June 20X0
20X1
Record tax expense (revenue), increase in deferred tax asset
and income tax payable for financial year ended 30 June 20X1
20X2
Record tax expense (revenue), decrease in deferred tax asset
and the income tax payable for financial year ended 30 June
20X2
1 In the profit or loss statement we have a line item for tax expense (revenue), the distinction
between current tax and deferred tax is important only for note disclosures made under AASB
112.80. For other comprehensive profit, the related income tax expense is disclosed either in the
comprehensive profit statement or the notes to the financial statements; again no distinction is
made between current tax and deferred tax. While we believe that the two components should be
separated in the journals and ledgers, it is not strictly necessary for the implementation of AASB
112.
10.18 Tax effect accounting: Multiple items
First, determine current tax expense for each reporting period using a schedule:
Year ending 30 June 20X1 Year ending 30 June 20X2
(1) (2) (3) (4) (5) (6)
Accounting Tax Difference Accounting Tax Difference
purposes purposes amount purposes purposes amount
((1)-(2)) ((4)–(5))
$ $ $ $ $ $
Entertainment expense 2 000 Nil + 2 000 1 000 Nil + 1 000
Sick leave expense 3 000 Nil + 3 000 3 000 2 000 + 1 000
Long service leave 1 000 Nil + 1 000 1 000 Nil + 1 000
Depreciation on machine 4 000 8 000 – 4 000 4 000 8 000 – 4 000
Depreciation on plant 5 000 2 000 + 3 000 Nil Nil
+ 5 000 – 1 000
Loss on sale of plant Nil 3 000
– 3 000
– 4 000
Note: The ‘+’ and ‘–’ signs for the dollar amounts appearing in columns 3 and 6 indicate whether the
difference results in taxable income being greater than pre-tax accounting profit (+) or less than pre-
tax accounting profit (–).
Taxable income and current tax expense for 20X1

Taxable income will be ($200 000 + $5 000) = $205 000. Income tax payable and current tax
expense at 30% will be $61 500.
Taxable income and current tax expense for 20X2

The plant was disposed of at the start of this year. Although the plant was disposed of at its carrying
amount (therefore no accounting profit or loss), the use of accelerated depreciation for accounting
purposes means that there was a loss on disposal for income tax purposes ($3 000). Such a loss can
be claimed as a deduction for income tax purposes. It produces a reduction in the income tax
payable and the current tax expense for the period. The pre-income tax accounting profit for the
period is not affected since there is no accounting profit or loss on disposal. (Note: A profit on
disposal would be assessable income, but taxpayers can elect to deduct the profit from the
acquisition cost of a replacement asset.)
Taxable income (excluding impact of plant disposal) = $150 000 – $1 000 = $149 000.
Taxable income (including impact of plant disposal) = $149 000 - $3 000 = $146 000.
Income tax payable and current tax expense = 30% of $146 000 = $43 800.
Next, we determine the deferred tax for the two reporting periods. The first step is to determine the
carrying amount and tax base of the items at each relevant date.
Carrying
amount Tax base
Long service leave provision
1 July 2000 initial balance 0 0
30 June 20X1 expense 1000 0
30 June 20X2 expense 1000 0
Sick leave provision
1 July 2000 initial balance 0 0
6 000 0
30 June 20X2 payment 2 000 0
Plant
Cost 25 000 25 000
30 June 20X1 balance 20 000 23 000
Machine
Cost 20 000 20 000
30 June 20X1 balance 16 000 12 000
30 June 20X2 balance 12 000 4 000
We can now complete the deferred tax worksheet (it is presented on the next page).
Temporary Deferred tax Other Profit or

EOP differences EOP SOP expense comprehensive loss
30 June 20X0
Machine 20 000 20 000 0 0 0 0 0 0 0 0 0
Plant 25 000 25 000 0 0 0 0 0 0 0 0 0
Long service leave 0 0 0 0 0 0 0 0 0 0 0
Sick leave 0 0 0 0 0 0 0 0 0 0 0
0 0
30 June 20X1
Machine 16 000 12 000 4 000 0 1 200 0 0 0 1 200 0 1 200
Plant 20 000 23 000 0 3 000 0 900 0 0 (900) 0 (900)
Long Service Leave 1 000 0 0 1 000 0 300 0 0 (300) 0 (300)
Sick leave 3 000 0 0 3 000 0 900 0 0 (900) 0 (900)
1 200 2 100 0 0 (900) 0 (900)

Change in DTL +1 200
Change in DTA +2 100
30 June 20X2
Machine 12 000 4 000 8 000 0 2 400 0 1 200 0 1 200 0 1 200
Plant 0 0 0 0 0 0 0 900 900 0 900
Long Service Leave 2 000 0 0 2 000 0 600 0 300 (300) 0 (300)
Sick leave 4 000 0 0 4 000 0 1 200 0 900 (300) 0 (300)
2 400 1 800 1 200 2 100 1 500 0 1 500

Change in DTA –300
Note that since the entertainment expenses do not result in the recognition of an asset or liability, no
temporary difference arises.
Journal entries for Cooper Ltd recognising net current tax expense (revenue):
20X1
Recognises current tax expense and income tax payable for
financial year ended 30 June 20X1

Cr Deferred tax revenue 900
Recognises increase in deferred tax asset and deferred tax
liability and the deferred tax revenue for the reporting period
ended 30 June 20X1

Dr Deferred tax revenue 900
revenue to tax expense (revenue) account
20X2
June 30 Dr Current tax expense 43 800
Record current tax expense for financial year ended 30 June
20X2

Cr Deferred tax asset 300
Recognises change in deferred tax asset (decrease) and
deferred tax liability (increase) and the deferred tax expense for
the reporting period ended 30 June 20X2

Journal entries for Cooper Ltd for separate recognition of deferred tax expense and deferred tax
revenue:
20X1
Recognises current tax expense and income tax payable for
financial year ended 30 June 20X1

Recognises increase (from zero) in deferred tax asset and the
deferred tax revenue for the reporting period

Recognises increase (from zero) in deferred tax liability and the
deferred tax expense for the reporting

Transfers balances of current tax expense, deferred tax expense
and deferred tax revenue to tax expense (revenue)account
20X2
Record current tax expense for financial year ended 30 June
20X2
Dr Deferred tax expense 300

Recognises decrease in deferred tax asset and associated
deferred tax expense for the reporting period

Recognises increase in deferred tax liability and the deferred tax
expense for the reporting period

10.19 Tax effect accounting: Multiple items
(a) Calculation of taxable income and journal entries
The data gives the pre-tax accounting profit, therefore to find the taxable income we must adjust for
differences between the calculation of pre-tax accounting profit and taxable income; here due to
different treatment of the listed expenses. This can be done in several ways; one way (shown below)
is to add back the expense recognised for accounting and then deduct the allowable deductions.
Pre-tax accounting profit (including listed items) 520 000

add back Expenses included:
Warranty 50 000
Depreciation 75 000
Amortisation – research and development 50 000 175 000
695 000
less Allowable deductions
Warranty 60 000
Depreciation 90 000
Research and development (125% of $160 000) 200 000 350 000
Taxable income 345 000
Income tax payable (30%) 103 500
The journal entry will be:
2005
31 December Dr Current tax expense 103 500
(b) Identification of temporary differences, determining amounts for resulting DTAs and
DTLs
The first step is to determine the carrying amount and tax base of the items at the SOP and EOP.
Carrying
amount Tax base
Provision for warranty
SOP balance 200 000 0
Expense for period 50 000 0
250 000 0
Warranty payments 60 000 0
EOP balance 190 000 0
Depreciable non-current assets
Cost 500 000 500 000
SOP accumulated depreciation 150 000 210 000
SOP balance 350 000 290 000
Expense for period 75 000 90 000
EOP balance 275 000 200 000
Carrying
amount Tax base
Research and development
SOP carrying amount 200 000 0
add expenditure for period 160 000 0
360 000 0
less amortisation for the period 50 000 0
EOP balance 310 000 0
Land
SOP balance: Cost 450 000 450 000
SOP revaluation increment 150 000 0
EOP balance 600 000 450 000
We can now prepare the deferred tax worksheet (this is done on the next page).
The Journal entry for deferred tax will be:
2005
31 December Dr Deferred tax expense 40 500
Dr Asset revaluation reserve 45 000

31 December 20X4
Depreciable non-current asset 350 000 290 000 60 000 0 18 000 0
Land 450 000 450 000 0 0 0 0
Research and development 200 000 0 200 000 0 60 000 0
Provision – warranty 200 000 0 0 200 000 0 60 000
78 000 60 000
31 December 20X5
Depreciable non-current asset 275 000 200 000 75 000 0 22 500 0 18 000 0 4 500 4 500
Land 600 000 450 000 150 000 0 45 000 0 0 0 45 000 45 000
Research and development 310 000 0 310 000 0 93 000 0 60 000 0 33 000 33 000
Provision – warranty 190 000 0 0 190 000 0 57 000 0 60 000 3 000 3 000
160 500 57 000 78 000 60 000 85 500 45 000 40 500
Change in DTA -3 000

Change in DTL 82 500
10.20 Tax effect accounting and an accounting loss

First, determine nature of items, using a schedule:
Year ending 30 June 20X1 Year ending 30 June 20X2 Year ending 30 June 20X3
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Accounting Tax Difference Accounting Tax Difference Accounting Tax Difference
purposes purposes amount purposes purposes amount purposes purposes amount
((1)–(2)) ((4)–(5)) ((8)–(9)
$ $ $ $ $ $ $ $ $
Travel expense 1 000 Nil + 1 000 2 000 Nil + 2 000 3 000 Nil + 3 000
Long service leave 1 000 Nil + 1 000 2 000 Nil + 2 000 4 000 5 000 – 1 000
Depreciation on machine 4 000 8 000 – 4 000 4 000 8 000 – 4 000 4 000 8 000 – 4 000
– 2 000 Nil – 2 000
+
Taxable income – 52 000 + 20 000 58 000
–
Prior period tax loss recouped – 20 000 32 000
Adjusted taxable income Nil 26 000
Note: The ‘+’ and ‘–’ signs for the dollar amounts appearing in columns 3, 6 and 9 indicate whether the difference results in taxable income being greater
than pre-tax accounting profit (+) or less than pre-tax accounting profit (–).
For 20X1, taxable income will be –$50 000 + –$2 000 = –$52 000. A potential deferred tax asset
for the tax loss is therefore available of 30% x $52 000 = $15 600.
For 20X2, taxable income (excluding carry-forward tax loss deduction) will be $20 000, giving
current tax expense of $6 000 (30% of $20 000), but is potentially reducible to zero by the
availability of the carry-forward tax loss. This realisation of the current period tax benefit for carry-
forward tax loss means that the previously recognised DTA for the tax loss from 20X1 is reduced to
zero, and there is a corresponding deferred tax expense. If this is the case, the current tax expense
and the income tax payable will be zero.
For 20X3, taxable income will be $60 000 – 2 000, giving current tax expense and income tax
payable of $17 400 (30% of $58 000), but may be reduced by the remaining DTA for the tax loss of
$32 000 (that is, $52 000 – $20 000) to $26 000 in which case income tax payable and current tax
expense is $26 000 x 30% = $7 800.
To determine the deferred tax amounts, we must calculate the amounts of the carrying amount and
tax base at the relevant dates.
Carrying
amount Tax base
Calculations: Machine
Cost 1 July 20X0 50 000 50 000
30 June 20X1 balance 46 000 42 000
30 June 20X2 balance 42 000 34 000
30 June 20X3 balance 38 000 26 000
Calculations: Long service leave
Balance 1 July 20X0 0 0
30 June 20X3 expense 4 000 5 000
30 June 20X3 payment –5 000 –5 000
Note that, since the travel expenses are a permanent difference that does not result in the
recognition of an asset or a liability, they do not give rise to a temporary difference.
The deferred tax worksheet is on the next page.

30 June 20X0
Machine 50 000 50 000 0 0 0 0
Long service leave 0 0 0 0 0 0
0 0
30 June 20X1
Machine 46 000 42 000 4 000 0 1 200 0 0 0 1 200 0 1 200
Long service leave 1 000 0 0 1 000 0 300 0 0 (300) 0 (300)
1 200 300 900
Increase in DTL 1 200
Increase in DTA 300
30 June 20X2
Machine 42 000 34 000 8 000 0 2 400 0 1 200 0 1 200 0 1 200
Long service leave 3 000 0 0 3 000 0 900 0 300 (600) 0 (600)
2 400 900 1 200 300 600
Increase in DTA 600
30 June 20X3
Machine 38 000 26 000 12 000 0 3 600 0 2 400 0 1 200 0 1 200
Long service leave 2 000 0 0 2 000 0 600 0 900 300 0 300
3 600 600 2 400 900 1 500
Increase in DTA (300)
Journal entries for Daniel Ltd:

(It is not necessary to separate the tax effects of the tax loss and the temporary differences, but we
do so in these journal entries to make the process transparent.)
Introductory comments: The disclosure requirements of AASB 112 require separate aggregation of
four components of tax expense (revenue); current tax expense, current tax revenue, deferred tax
expense and deferred tax revenue. The best way to do so is through separate ledger accounts for the
four components. Similarly, the disclosures about the impact of tax losses mean that it is useful to
aggregate them in separate ledger accounts.
(i) Assuming that probability of recovering tax loss is more than 50%
20X1
30 June Dr Deferred tax asset (tax loss) 15 600
Cr Deferred tax revenue (tax loss) 15 600
Record deferred tax asset for tax loss of $52 000 for financial
year ended 30 June 20X1
Dr Deferred tax asset 300

Recognises increase (from zero) in deferred tax asset and the
associated deferred tax revenue for reporting period ended 30
June 20X1

Recognises increase (from zero) in deferred tax liability, and the
associated deferred tax expense for reporting period ended 30
June 20X1
Dr Deferred tax revenue (tax loss) 15 600

Cr Tax expense (revenue) 14 700
Transfers balances of deferred tax revenues and deferred tax
expense to tax expense (revenue) account
20X2
30 June Dr Deferred tax expense (tax loss) 6 000
Cr Deferred tax asset (tax loss) 6 000
Record deferred tax expense for financial year ended 30 June
20X2 due to recoupment of $20 000 of prior year tax loss

Recognises increase in deferred tax asset and associated
deferred tax revenue for reporting period ended 30 June 20X2

Recognises increase in deferred tax liability, and the associated
deferred tax expense for reporting period ended 30 June 20X2

Cr Deferred tax expense (tax loss) 6 000
Transfers of balances deferred tax expenses and deferred tax
20X3

Recognises decrease in deferred tax asset, increase in deferred
tax liability, and the deferred tax expense for reporting period
ended 30 June 20X3
Dr Current tax expense 7 800

Recognition of current tax expense and income tax payable for
reporting period ended 30 June 20X3

expenses to tax expense (revenue)account
Extract from general ledger:
Debit Credit Balance
$ $ $
Deferred tax asset
20X1
30 June Deferred tax revenue 300 300 Dr
20X2
20X3
30 June Deferred tax expense 300 600 Dr
Deferred tax asset (tax loss)

20X1
30 June Deferred tax revenue (tax loss) 15 600 15 600 Dr
20X2
30 June Deferred tax expense (tax loss) 6 000 9 600 Dr
20X3
30 June Deferred tax expense (tax loss) 9 600 –
$ $ $
Deferred tax liability
20X1
30 June Deferred tax expense 1 200 1 200 Cr
20X2 30
June Deferred tax expense 1 200 2 400 Cr
20X3
(ii) Assuming that probability of tax loss recovery is less than 50% in 20X1
Year to 30 June 20X1:

No deferred asset is recognised for the tax loss. Since the same probability test is applied to
other deferred tax assets, then it appears that no deferred tax asset can be recognised for the
temporary difference. However, since it is deemed that it is always probable that a deferred
tax liability will be paid, we must recognise the deferred tax liability for the accelerated
depreciation:
20X1
30 June Dr Deferred tax expense 1 200
Recognition of increase (from zero) in deferred tax liability and

Transfers balance of deferred tax expense to tax expense
(revenue) account
Remember that, unlike the original version of the balance sheet method of tax effect accounting in
AASB 1020, the existence of a deferred tax liability does not justify the recognition of a DTA (for
tax losses or otherwise) up to the amount of the balance of the DTL, since under AASB 112 a DTA
can only be recognised to the extent that it is probable that there will be ‘future taxable profits
against which the deductible temporary difference can be utilised’ (AASB 112.24).
Year to 30 June 20X2:
Since the company was profitable for this reporting period, all other things being equal, it
would now be probable that the future deductible amounts for both the prior period tax losses
and the temporary difference will be recovered.
20X2
30 June Dr Deferred tax asset 300
Dr Deferred tax asset (tax loss) 9 600
Cr Deferred tax revenue (tax loss) 9 600
Recognises deferred tax revenues; and deferred tax asset for
un-recouped prior year tax loss of $52 000 (ie $32 000) and for
unrecognised prior period deductible temporary difference of
$1 000

Recognises increase in deferred tax asset and associated
deferred tax revenue for reporting period ended 30 June 20X2

Recognises increase in deferred tax liability, and the associated

Dr Deferred tax revenue (tax loss) 9 600
Cr Tax expense (revenue) 9 300
Transfers balances of deferred tax revenues and deferred tax
expense to tax expense (revenue) account
20X3

Recognises decrease in deferred tax asset, increase in deferred
tax liability, and the associated deferred tax expense for
Dr Current tax expense 7 800

Recognition of current tax expense and income tax payable for

expenses to tax expense (revenue) account
Observe that the 20X3 entries are the same as in (a)(i).
Extract from general ledger:

$ $ $
Deferred tax asset
20X2
Deferred tax revenue 600 900 Dr
20X3
30 June Deferred tax expense 300 600 Dr
Deferred tax asset (tax loss)

20X2
30 June Deferred tax revenue (tax loss) 9 600 9 600 Dr
20X3
30 June Deferred tax expense (tax loss) 9 600 –

20X1
20X2 30
June Deferred tax expense 1 200 2 400 Cr
20X3
10.21 Changes to tax rate
The change in the tax rate requires an increase in the balance of the DTA and DTL:
For DTA: $8 700 x (35–30)/30 = $1 450
For DTL: $4 200 x (35–30)/30 = $700
Under AASB 112 we only report the total tax expense, comprising deferred and current tax. Also, it
is only necessary to report an aggregate revenue or expense. However, it will facilitate disclosure
required by AASB 112 if we separate deferred tax revenue and deferred tax expense. Below we
present journal entries for both approaches.
Journal entries for Birt Ltd – recognition of net deferred tax expense (revenue):

Cr Deferred tax liability 700
Adjustment to balance of deferred tax liability and deferred tax
asset accounts due to change in rate of company income tax
and associated deferred tax revenue
Journal entries for Birt Ltd – recognition of deferred tax expense and deferred tax revenue:
Dr Deferred tax expense 700

Dr Deferred tax liability 700
Adjustment to balance of deferred tax liability account due to
change in rate of company income tax and associated deferred
tax expense

Adjustment to balance of deferred tax asset account due to
change in rate of company income tax and associated deferred
tax revenue
10.22 Tax impact of revaluation of depreciable non-current asset

Calculations:
6 7 8 9
20X8 20X9 20Y0 20Y1
Tax base
Cost 500 000 500 000 500 000 500 000
=1x2 Accumulated depreciation 500 000 500 000 500 000 500 000
3 Tax base 0 0 0 0
Calculation of depreciation
Depreciable amount
1 Annual depreciation (depreciable amount/5)
2 Years depreciated 5 5 5 5
Carrying amount
Cost or revalued amount 120 000 100 000 90 000 50 000
=7x6 Accumulated depreciation 40 000 25 000 30 000 25 000
8 Carrying amount at reporting date 80 000 75 000 60 000 25 000
9 Fair value at reporting date 100 000 90 000 50 000 24 500
= (|9–8|/9)% Materiality (|FV–CA|/FV)% 20.00% 16.67% 20.00% 2.04%
10 Revised reporting date carrying amount 100 000 90 000 50 000 25 000
=9–8 Revaluation increment (decrement) 20 000 15 000 –10 000 0
Calculation of depreciation
4 SOP Depreciable amount 120 000 100 000 90 000 50 000
5 Period over which depreciated
5 Useful life at most recent revaluation 6 4 3 2
6 = 4/5 Annual depreciation expense 20 000 25 000 30 000 25 000
7 Number of year depreciated since last revaluation 2 1 1 1
Tax-effect
Reporting date temporary difference (CA – TB)
11 = 8 – 3 – before revaluation 80 000 75 000 60 000 25 000
12 = 10 – 8 – after revaluation (if any) 100 000 90 000 50 000 25 000
13 – SOP DTL 30 000 30 000 27 000 15 000
14 = 11 x r – EOP DTL (before revaluation) 24 000 22 500 18 000 7 500
15 = 12 x r – EOP DTL (after revaluation if any) 30 000 27 000 15 000 7 500
Deferred tax expense (revenue)

= 14 – 13 – excluding revaluation –6 000 –7 500 –9 000 –7 500
= 15 – 14 – relating to revaluation 6 000 4 500 –3 000 0
0 –3 000 –12 000 –7 500
The process adopted in calculating these amounts is described in example 10.3 (pages 251–252).
The associated journal entries are as follows:
20X8
30 June Dr Deferred tax liability 6 000
Tax effect of applying different depreciation rates for accounting
and tax purposes
Dr Accumulated depreciation – plant 40 000

Cr Plant 40 000
Transfers accumulated depreciation to asset prior to revaluation
Dr Plant 20 000
Cr Asset revaluation reserve 14 000
Recognises revaluation of plant to fair value and associated tax
impact
20X9
and tax purposes

Cr Plant 25 000
Dr Plant 15 000
impact
20Y0
and tax purposes

Cr Plant 30 000

Cr Plant 10 000
impact
20Y1
and tax purposes

1 2 3 4 5 6 7 8
20X3 20X4 20X5 20X6 20X7 20X8 20X9 20Y0
Tax base
Cost 400 000 400 000 400 000 400 000 400 000 400 000 400 000 400 000
=1x2 Accumulated depreciation 100 000 200 000 300 000 400 000 400 000 400 000 400 000 400 000
3 Tax base 300 000 200 000 100 000 – – – – –
Depreciable amount 400 000

Annual depreciation
1 (depreciable amount/4) 100 000
2 Years depreciated 1 2 3 4 4 4 4 4
Carrying amount
Cost or revalued amount 400 000 420 000 420 000 350 000 350 000 150 000 150 000 150 000
Carrying amount at reporting
8 date 350 000 360 000 300 000 280 000 210 000 100 000 50 000 0
9 Fair value at reporting date 420 000 375 000 350 000 275 000 150 000 98 000 52 000 N/A
= (|9–
8|/9)% Materiality (|FV-CA|/FV)% 16.67% 4.00% 14.29% 1.82% 40.00% 2.04% 3.85% –
Revised reporting date
10 carrying amount 420 000 360 000 350 000 280 000 150 000 100 000 50 000 –
Revaluation increment
=9–8 (decrement) 70 000 – 50 000 – (60 000) – – –
4 SOP Depreciable amount 400 000 420 000 420 000 350 000 350 000 150 000 150 000 150 000
5 Period over which depreciated 8
Useful life at most recent
5 revaluation na 7 7 5 5 3 3 3
6 = 4/5 Annual depreciation expense 50 000 60 000 60 000 70 000 70 000 50 000 50 000 50 000
Number of year depreciated
7 since last revaluation 1 1 2 1 2 1 2 3
Income tax-effect
Reporting date temporary
difference (CA - TB)
11 = 8 – 3 before revaluation 50 000 160 000 200 000 280 000 210 000 100 000 50 000 0
12 = 10 – 8 after revaluation (if any) 120 000 160 000 250 000 280 000 150 000 100 000 50 000 –
13 SOP DTL – 36 000 48 000 75 000 84 000 45 000 30 000 15 000

14 = 11 x r EOP DTL (before revaluation) 15 000 48 000 60 000 84 000 63 000 30 000 15 000 –
EOP DTL (after revaluation if

15 = 12 x r any) 36 000 48 000 75 000 84 000 45 000 30 000 15 000 –
Deferred tax expense

(revenue)
= 14 – 13 excluding revaluation 15 000 12 000 12 000 9 000 (21 000) (15 000) (15 000) (15 000)
= 15 – 14 relating to revaluation 21 000 – 15 000 – (18 000) – – –
36 000 12 000 27 000 9 000 (39 000) (15 000) (15 000) (15 000)
Journal entries:
20X3
and tax purposes

Cr Plant 50 000
Dr Plant 70 000
impact
20X4
and tax purposes
20X5
and tax purposes

Cr Plant 120 000
Dr Plant 50 000
impact
20X6

and tax purposes
20X7
and tax purposes

Cr Plant 140 000

Cr Plant 60 000
impact
20X8
and tax purposes
20X9
and tax purposes
20Y0
and tax purposes

1 2 3 4 5 6 7 8
20X3 20X4 20X5 20X6 20X7 20X8 20X9 20Y0
Tax base
Cost 600 000 600 000 600 000 600 000 600 000 600 000 600 000 600 000
3 Tax base 450 000 300 000 150 000 – – – – –
Depreciable amount 600 000

Annual depreciation (depreciable
1 amount/4) 150 000
2 Years depreciated 1 2 3 4 5 6 6 6
Carrying amount
Cost or revalued amount 600 000 630 000 510 000 510 000 510 000 510 000 155 000 155 000
8 Carrying amount at reporting date 525 000 540 000 425 000 340 000 255 000 170 000 77 500 –
9 Fair value at reporting date 630 000 510 000 410 000 325 000 260 000 155 000 80 000 N/A
= (|9–
8|/9)% Materiality (|FV-CA|/FV)% 16.67% 5.88% 3.66% 4.62% 1.92% 9.68% 3.13% –
Revised reporting date carrying
10 amount 630 000 510 000 425 000 340 000 255 000 155 000 77 500 –
=9–8 Revaluation increment (decrement) 105 000 (30 000) – – – (15 000) – –
4 SOP Depreciable amount 600 000 630 000 510 000 510 000 510 000 510 000 155 000 155 000
5 Period over which depreciated 8
Useful life at most recent
5 revaluation na 7 6 6 6 6 2 2
6 = 4/5 Annual depreciation expense 75 000 90 000 85 000 85 000 85 000 85 000 77 500 77 500
Number of year depreciated since
7 last revaluation 1 1 1 2 3 4 1 2
Income tax-effect
Reporting date temporary difference
(CA – TB)
11 = 8 – 3 before revaluation 75 000 240 000 275 000 340 000 255 000 170 000 77 500 –
12 = 10 – 8 after revaluation (if any) 180 000 210 000 275 000 340 000 255 000 155 000 77 500 –
13 SOP DTL 0 54 000 63 000 82 500 102 000 76 500 46 500 23 250
14 = 11 x r EOP DTL (before revaluation) 22 500 72 000 82 500 102 000 76 500 51 000 23 250 –
15 = 12 x r EOP DTL (after revaluation if any) 54 000 63 000 82 500 102 000 76 500 46 500 23 250 –
Deferred tax expense (revenue)

= 14 – 13 excluding revaluation 22 500 18 000 19 500 19 500 (25 500) (25 500) (23 250) (23 250)
= 15 – 14 relating to revaluation 31 500 (9 000) – – – (4 500) – –
54 000 9 000 19 500 19 500 (25 500) (30 000) (23 250) (23 250)
Journal entries:
20X3
and tax purposes

Cr Plant 75 000
Dr Plant 105 000

impact
20X4
and tax purposes

Cr Plant 90 000

Cr Plant 30 000
impact
20X5
and tax purposes
20X6
and tax purposes
20X7
and tax purposes
20X8
and tax purposes

Cr Plant 340 000

Cr Plant 15 000
impact
20X9
and tax purposes
20Y0
and tax purposes
10.25 Comprehensive tax effect accounting

First, we calculate the current tax expense and income tax payable:
(1) (2) (3)
Accounting Difference
purposes Tax purposes amount
(1)–(3)
$ $ $
Long service leave 250 000 Nil + 250 000
Entertainment expense 150 000 Nil + 150 000
Research and development Nil 500 000 – 500 000
Interest revenue 275 000 200 000 – 75 000
Rent expense 350 000 325 000 + 25 000
Depreciation – plant and equipment 600 000 300 000 + 300 000
Depreciation – building 75 000 150 000 – 75 000
+ 75 000
Pre-tax accounting profit 10 800 000
Taxable income 10 875 000
Income tax payable (30%) 3 262 500
Note: The ‘+’ and ‘–’ signs for the dollar amounts appearing in column 3 indicate whether the difference
results in taxable income being greater than pre-tax accounting profit (+) or less than pre-tax
accounting profit (–).
The next step is to find the carrying amount and tax base at the beginning and the end of the
reporting period.
Carrying
amount Tax Base
Plant and equipment
Cost 1 July 20X3 2 000 000 2 000 000
30 June 20X4 balance 1 400 000 1 700 000
30 June 20X5 balance 800 000 1 400 000
30 June 20X6 balance 200 000 1 100 000
Long service leave
Balance 1 July 20X5 480 000 0

Carrying amount 1 July 20X5 1 450 000 0
30 June 2006 expenditure 400 000 0
30 June 20X6 balance 1 850 000 0
Building
Cost 1/7/20X1 1 500 000 1 500 000
30 June 20X2 balance 1 425 000 1 350 000
30 June 20X3 balance 1 350 000 1 200 000
30 June 20X4 balance 1 275 000 1 050 000
30 June 20X5 balance 1 200 000 900 000
30 June 20X6 balance 1 125 000 750 000
Rent payable
Carrying amount 1 July 20X5 0 0
30 June 2006 expense 350 000 325 000
30 June 2006 payment 325 000 325 000
Interest receivable
Carrying amount 1 July 20X5 0 0
30 June 2006 revenue 275 000 200 000
30 June 2006 receipt 200 000 200 000
EOP Temporary differences EOP SOP Deferred tax Other Profit or

expense comprehensive loss
1 July 20X5
Plant and equipment 800 000 1 400 000 0 600 000 0 180 000
Research and development 1 450 000 0 1 450 000 0 435 000 0
Building 1 200 000 900 000 300 000 0 90 000 0
Interest receivable 0 0 0 0 0 0
Rent payable 0 0 0 0 0 0
Long service leave 480 000 0 0 480 000 0 144 000
525 000 324 000
30 June 20X6
Plant and equipment 200 000 1 100 000 0 900 000 0 270 000 0 180 000 (90 000) 0 (90 000)
Research and development 1 850 000 0 1 850 000 0 555 000 0 435 000 0 120 000 0 120 000
Building 1 125 000 750 000 375 000 0 112 500 0 90 000 0 22 500 0 22 500
Interest receivable 75 000 0 75 000 0 22 500 0 0 0 22 500 0 22 500
Rent payable 25 000 0 0 25 000 0 7 500 0 0 (7 500) 0 (7 500)
Long service leave 730 000 0 0 730 000 0 219 000 0 144 000 (75 000) 0 (75 000)
690 000 496 500 525 000 324 000 (7 500) 0 (7 500)
Change in DTL 165 000

Change in DTA 172 500
We now calculate the deferred tax expense (revenue):
Note that since the entertainment expenses do not result in the recognition of an asset or liability, no
temporary difference arises in this item.
20X6
30 June Dr Deferred tax asset 172 500
Recognises increase in DTA balance over reporting period and
deferred tax revenue

Recognition of increase in DTL balance over reporting period
and deferred tax expense
Dr Current tax expense 3 262 500

Cr Income tax payable 3 262 500
Recognition of anticipated income tax assessment for 20X5-
20X6
account, the journal entry would be:
Dr Tax expense (revenue) 3 255 000

Cr Current tax expense 3 262 500
Note: Many entries nominally made on 30 June will in fact not be finalised until the financial report
is finalised.
We must also recognise the payment at a later date of the income tax payable:
Dr Income tax payable 3 262 500

Cr Cash 3 262 500
Payment of income tax payable for 20X4–20X5
(a) Calculation of income tax payable and current tax expense for 20X2
(1) (2) (3)
Accounting Tax Difference amount
purposes purposes
(1)–(3)
$ $ $
Expenses:
Employee benefits (long service leave) 45 000 a 15 000 + 30 000
Inventory – NRV reduction 0 b 25 000 – 25 000
Depreciation – buildings 40 000 c 20 000 + 20 000
Depreciation – plant 100 000 d 200 000 – 100 000
Research and development 50 000 e 0 + 50 000
Warranty 80 000 f 55 000 + 25 000
Doubtful debts expense 15 000 g 0 + 15 000
Debenture interest 117 000 h 100 000 + 17 000
Revenues
Revenue received in advance 50 000 i 0 – 50 000
Interest revenue 1 000 j 0 – 1 000
Total differences – 19 000
Pre-tax accounting profit 275 000
Income tax payable (30%) and current tax expense 76 800
a Employee benefits expense for long service leave is the sum of the amount paid ($15 000) and the increase in the provision of
$30 000 (EOP carrying amount – SOP carrying amount = $175 000 – $145 000), thus the expense is $45 000.
b At the beginning of the reporting period the tax base for inventory was greater than its carrying amount. This can only be so if
some of the inventory was impaired and recognised at its net realisable value under AASB 102. The amount of that impairment
was $25 000 ($115 000 – $90 000). There is no impairment at reporting date, so, on disposal of the inventory during the current
period, the tax deduction for the period is $25 000 greater.
c Depreciation of buildings for accounting purposes is $40 000 (SOP carrying amount – EOP carrying amount = $720 000 –
$680 000), so tax deduction is $20 000 (half that for accounting purposes).
d Depreciation of plant for accounting purposes is $100 000 (SOP carrying amount – EOP carrying amount = $800 000 –
$700 000), so tax deduction is $200 000 (twice that for accounting purposes).
e The carrying amount of research and development decreased by $50 000 (SOP carrying amount – EOP carrying amount =
$100 000 – $50 000). It is assumed that no research and development expenditure was made during the reporting period.
f The provision for warranty increased by $25 000 (EOP carrying amount – SOP carrying amount = $135 000 – $110 000),
therefore the expense is $25 000 greater than the amount paid of $55 000, that is $80 000.
g Estimated uncollectible debts increased by $15 000 (EOP amount – SOP amount = $30 000 – $15 000 so the accounting
expense exceeded the tax deduction by $15 000. We do not know the amount of the tax deduction; however, we know the
amount of the difference.
h Interest expense = interest paid ($100 000) plus increase in debenture carrying amount of $17 000 (EOP carrying amount – SOP
carrying amount = $933 000 – $916 000), a total of $117 000.
i The carrying of revenue received in advance decreased by $50 000 (SOP carrying amount – EOP carrying amount = $50 000 –
$0), thus accounting revenue exceeded tax revenue by that amount.
j Interest receivable increased $1 000 (EOP carrying amount – SOP carrying amount = $6 000 – $5 000), therefore the accounting
revenue exceeded the assessable income by $1 000, although we do not know the amount recognised for financial reporting
purposes, however, the net amount is sufficient.
Note: The ‘+’ and ‘–’ signs for the dollar amounts appearing in column 3 indicate whether the difference results in
taxable income being greater than pre-tax accounting profit (+) or less than pre-tax accounting profit (–).
Alternative derivation of the amounts in the table:
Note a
Provision – Employee benefits
20X1
Cash (amount paid) 15 000 1 July Balance b/d 145 000
20X2 Employee benefits
30 June Balance c/d 175 000 expense 45 000
190 000 190 000
Note f
Provision – Warranty
20X1
20X2
30 June Balance c/d 135 000 Warranty expense 80 000
190 000 190 000
Note g
Estimated uncollectible debts
Accounts receivable
(amount
recognised as not 20X1
recoverable) X 1 July Balance b/d 15 000
20X2
30 June Balance c/d 30 000 Doubtful debts expense X + 15 000
X + 30 000 X + 30 000
We do not know the amount of accounts receivable that became bad debts, and thus were derecognised,
during the period. However, as demonstrated above, if the amount is $X, then the amount of the expense for
the period must be $X + $15 000. The amount recognised as not recoverable is the tax deduction, and the
expense is the amount included in accounting profit, hence the expense exceeds the allowable deduction by
$15 000.
Note h
Debentures
20X2 20X1
30 June 1 July Balance b/d 916 000
Balance c/d 933 000 Interest expense 17 000
933 000 933 000
Interest expense
20X2 20X1
30 June Cash (amount paid) 100 000 1 July
Debentures 17 000 Profit and loss 117 000
117 000 117 000
The amount of interest expense has two components; the amount actually paid and the increase in the
carrying amount of the debenture liability (as shown above).
Note i
Interest received in advance
20X1
Interest revenue X + 50 000 1 July Balance b/d 50 000
20X2
30 June Balance c/d 0 Interest received X + 50 000
X + 50 000 X + 50 000
We do not know the amount of either of the interest revenue for the period, or the amount of interest received.
However, as demonstrated above, if the amount received is $X, then the amount of the interest revenue for
the period must be $X + $50 000.
Note j
Interest receivable
20X1
1 July Balance b/d 5 000 Interest received Y
20X2
Interest revenue Y + 1 000 30 June Balance c/d 6 000
Y + 6000 X + 6 000
However, as demonstrated above, if the amount received is $Y, then the amount of the interest revenue for
the period must be $Y + $1 000.
For the depreciation of the buildings and the plant, we have the SOP and EOP carrying amount, and
the fact that there were no additions or disposals, therefore we can work out the expense and the
allowable deduction for the period.
Notes c and d
Buildings Plant
(1) SOP carrying amount (1 July 20X1) 720 000 800 000
(2) EOP carrying amount (30 June 20X2) 680 000 700 000
(3) = (2)–(1) Depreciation expense 40 000 100 000
(4)(i) Allowable deduction (50% of expense) 20 000

(4)(ii) Allowable deduction (200% of expense) 200 000
(5) SOP tax base (1 July 20X1) 760 000 600 000
(6) = (4) Current period allowable deduction 20 000 200 000
EOP tax base 30 June 20X2) 740 000 400 000
(b) and (c) End of period DTAs and DTLs, and deferred tax expense
The calculation of the end period amounts for the DTA, and DTL and of the deferred tax expense
for the period are in the deferred tax worksheet on the next page.
Allocations Ltd partial deferred tax worksheet for reporting period ending 30 June 20X2
EOP Temporary differences EOP SOP Deferred Tax rate change Other
tax Deferred compre- Profit or
expense Decrease Decrease tax expense hensive loss
CA TB Taxable Deductible DTL DTA DTL DTA (revenue) in DTL in DTA (revenue) profit statement
Assets
Cash 130 000 130 000
Inventory 125 000 125 000 7 500 7 500 7 500
Accounts receivable 300 000 330 000 30 000 9 000 4 500 (4 500) 1 500 1 500 (3 000)
Term deposit 250 000 250 000
Interest receivable 6 000 0 6 000 1 800 1 500 300 300 (300)
Plant 700 000 400 000 300 000 90 000 60 000 30 000 15 000 (15 000) 15 000
Building 680 000 740 000 60 000 18 000 12 000 (6 000) 3 000 3 000 (3 000)
Land 650 000 500 000 150 000 45 000 45 000 7 500 (7 500) (7 500)
(15 000
Research and development 50 000 0 50 000 15 000 30 000 ) 2 500 (2 500) (17 500)
2 891 000 2 475 000
Liabilities
Accounts payable 110 000 110 000
135 00
Provision -- Warranty 135 000 0 0 40 500 33 000 (7 500) 6 750 6 750 (750)
Provision -- Employee 175 00
benefits 175 000 0 0 52 500 43 500 (9 000) 8 750 8 750 (250)
Revenue received in advance 0 0 0 15 000 15 000 15 000
Debentures 933 000 1 000 000 67 000 0 20 100 25 200 0 (5 100) 3 350 (3 350) (8 450)
1 353 000 1 110 000
Net assets 1 538 000 1 365 000

171 90 120 00 161 70 115 50
0 0 0 0 5 700 28 650 20 000 (8 650) (7 500) 4 550
–
Change in DTA +4 500 20 000
+1 020 –
Change in DTL 0 28 650
The net deferred tax expense of $5 700 (excluding effect of tax rate change) is equal to the net increase in the DTL ($10 200) less the net increase in the
DTA ($4 500). It is possible to use the net amounts in the journal entries. However, it may be preferable to segregate the impact of the increments and
decrements since this will facilitate the disclosures required by AASB 112.
(d) Journal entries
In the journal entries below we have separated deferred tax revenue and deferred tax expense,
and changes to DTAs and DTLs due to the new tax rate (and associated deferred tax revenue
and deferred tax expense) as these amounts are needed to make the detailed note disclosures
required by AASB 112.
20X2
CR Income tax payable 76 800
Recognition of income tax payable for reporting period

Recognition of deferred tax revenue and net increase in deferred
tax asset due to deductible temporary difference arising in the
reporting period.

Recognition of deferred tax expense and net increase in
deferred tax liability due to taxable temporary difference arising
in the reporting period.

Decrease in deferred tax asset due to change in future tax rate
from 30% to 25%

Decrease in deferred tax liability due to change in future tax rate
from 30% to 25%; the DTL changes by $28 650, $7 500 relates
to revaluation of land and is recognised as other comprehensive
profit (see worksheet), and the balance ($28 650–$7 500 =
$21 150) is recognised as deferred tax revenue.
The disclosure requirements of AASB 112 require separate aggregation of four components
of tax expense (revenue); current tax expense, current tax revenue, deferred tax expense and
deferred tax revenue. The best way to do so is through separate ledger accounts for the
components. If at the end of the reporting period the balances of those accounts are
transferred to the tax expense (revenue) account, the journal entry would be:
Transfers balance of deferred tax revenue ($4 500 + $21 150 =
$25 650), deferred tax expense ($10 200 + $20 000 = $30 200)
and current tax expense ($76 800) to tax expense (revenue)
account

The solution to this question differs from that in question 10.26 in two ways. The tax rate in
20X2 was 33% rather than 30%, and the start of period amounts for the deferred tax assets
and the deferred tax liabilities were calculated with a tax rate of 33% (the end of period rate
applied in example 10.4). It is not expressly stated that the tax rate applicable in 20X2 was
33%, however, that was the reason for the restatement of the EOP amounts for DTAs and
DTLs in example 10.4. Therefore, the amounts for the current tax expense (revenue) and the
deferred tax expense (revenue) differ from those in question 10.26. The amount of the taxable
income is, of course, unchanged. As in question 10.26 the EOP amounts for DTAs and DTLs
are calculated using the tax rate of 25%, which comes into effect on the first day of the next
reporting period.
The differences from question 10.26 are highlighted in orange
(a) Calculation of income tax payable and current tax expense for 20X2
(1) (2) (3)
Accounting Tax Difference amount
purposes purposes
(1)-(3)
$ $ $
Expenses:
Employee benefits (long service leave) 45 000 a 15 000 + 30 000
Inventory – NRV reduction 0 b 25 000 – 25 000
Depreciation – buildings 40 000 c 20 000 + 20 000
Depreciation – plant 100 000 d 200 000 – 100 000
Research and development 50 000 e 0 + 50 000
Warranty 80 000 f 55 000 + 25 000
Doubtful debts expense 15 000 g 0 + 15 000
Debenture interest 117 000 h 100 000 + 17 000
Revenues
Revenue received in advance 50 000 i 0 – 50 000
Interest revenue 1 000 j 0 – 1 000
Total differences – 19 000
Income tax payable (33%) and current tax expense 84 480
a Employee benefits expense for long service leave is the sum of the amount paid ($15 000) and the increase in the provision of
$30 000 (EOP carrying amount – SOP carrying amount = $175 000 – $145 000), thus the expense is $45 000.
b At the beginning of the reporting period the tax base for inventory was greater than its carrying amount. This can only be so if
some of the inventory was impaired and recognised at its net realisable value under AASB 102. The amount of that impairment
was $25 000 ($115 000 – $90 000). There is no impairment at reporting date, so, on disposal of the inventory during the current
period, the tax deduction for the period is $25 000 greater.
c Depreciation of buildings for accounting purposes is $40 000 (SOP carrying amount – EOP carrying amount = $720 000 –
$680 000), so tax deduction is $20 000 (half that for accounting purposes).
d Depreciation of plant for accounting purposes is $100 000 (SOP carrying amount – EOP carrying amount = $800 000 –
$700 000), so tax deduction is $200 000 (twice that for accounting purposes).
e The carrying amount of research and development decreased by $50 000 (SOP carrying amount – EOP carrying amount =
$100 000 – $50 000). It is assumed that no research and development expenditure was made during the reporting period.
f The provision for warranty increased by $25 000 (EOP carrying amount – SOP carrying amount = $135 000 – $110 000),
therefore the expense is $25 000 greater than the amount paid of $55 000, that is $80 000.
g Estimated uncollectible debts increased by $15 000 (EOP amount – SOP amount = $30 000 – $15 000 so the accounting
expense exceeded the tax deduction by $15 000. We do not know the amount of the tax deduction; however, we know the
amount of the difference.
h Interest expense = interest paid ($100 000) plus increase in debenture carrying amount of $17 000 (EOP carrying amount – SOP
carrying amount = $933 000 – $916 000), a total of $117 000.
i The carrying of revenue received in advance decreased by $50 000 (SOP carrying amount – EOP carrying amount = $50 000 –
$0), thus accounting revenue exceeded tax revenue by that amount.
j Interest receivable increased $1 000 (EOP carrying amount – SOP carrying amount = $6 000 – $5 000), therefore the accounting
revenue exceeded the assessable income by $1 000, although we do not know the amount recognised for financial reporting
purposes, however, the net amount is sufficient.
Note: The ‘+’ and ‘–’ signs for the dollar amounts appearing in column 3 indicate whether the difference results in
taxable income being greater than pre-tax accounting profit (+) or less than pre-tax accounting profit (–).
Alternative derivation of the amounts in the table:
Note a
Provision – Employee benefits
20X1
20X2 Employee benefits
30 June Balance c/d 175 000 expense 45 000
190 000 190 000
Note f
Provision – Warranty
20X1
20X2
30 June Balance c/d 135 000 Warranty expense 80 000
190 000 190 000
Note g
Accounts receivable
(amount
recognised as not 20X1
recoverable) X 1 July Balance b/d 15 000
20X2
30 June Balance c/d 30 000 Doubtful debts expense X + 15 000
X + 30 000 X + 30 000
We do not know the amount of accounts receivable that became bad debts, and thus were derecognised,
during the period. However, as demonstrated above, if the amount is $X, then the amount of the expense for
the period must be $X + $15 000. The amount recognised as not recoverable is the tax deduction, and the
expense is the amount included in accounting profit, hence the expense exceeds the allowable deduction by
$15 000.
Note h
Debentures
20X2 20X1
30 June 1 July Balance b/d 916 000
Balance c/d 933 000 Interest expense 17 000
933 000 933 000
Interest expense
20X2 20X1
30 June Cash (amount paid) 100 000 1 July
Debentures 17 000 Profit and loss 117 000
117 000 117 000
The amount of interest expense has two components; the amount actually paid and the increase in the
carrying amount of the debenture liability (as shown above).
Note i
Interest received in advance
20X1
Interest revenue X + 50 000 1 July Balance b/d 50 000
20X2
30 June Balance c/d 0 Interest received X + 50 000
X + 50 000 X + 50 000
However, as demonstrated above, if the amount received is $X, then the amount of the interest revenue for
the period must be $X + $50 000.
Note j
Interest receivable
20X1
1 July Balance b/d 5 000 Interest received Y
20X2
Interest revenue Y + 1 000 30 June Balance c/d 6 000
Y + 6000 X + 6 000
However, as demonstrated above, if the amount received is $Y, then the amount of the interest revenue for
the period must be $Y + $1 000.
For the depreciation of the buildings and the plant, we have the SOP and EOP carrying
amount, and the fact that there were no additions or disposals, therefore we can work out the
expense and the allowable deduction for the period.
Notes c and d
Buildings Plant
(1) SOP carrying amount (1 July 20X1) 720 000 800 000
(2) EOP carrying amount (30 June 20X2) 680 000 700 000
(3) = (2)–(1) Depreciation expense 40 000 100 000
(4)(i) Allowable deduction (50% of expense) 20 000

(4)(ii) Allowable deduction (200% of expense) 200 000
(5) SOP tax base (1 July 20X1) 760 000 600 000
(6) = (4) Current period allowable deduction 20 000 200 000
EOP tax base 30 June 20X2) 740 000 400 000
(b) and (c) End of period DTAs and DTLs, and deferred tax expense
The calculation of the end period amounts for the DTA, and DTL and of the deferred tax
expense for the period are in the deferred tax worksheet on the next page.
Allocations Ltd partial deferred tax worksheet for reporting period ending 30 June 20X2
Temporary
EOP differences EOP SOP Deferred Tax rate change Other
tax Increase Increase Deferred compre-
expense (decrease) (decrease) tax expense hensive Profit or loss
Assets
Cash 130 000 130 000
Inventory 125 000 125 000 8 250 8 250 8 250
Accounts receivable 300 000 330 000 30 000 9 900 4 950 (4 950) (2 400) 2 400 (2 550)
Term deposit 250 000 250 000
Interest receivable 6 000 0 6 000 1 980 1 650 330 (480) (480) (150)
Plant 700 000 400 000 300 000 99 000 66 000
33 000 (24 000) (24 000) 9 000
Building 680 000 740 000 60 000 19 800 13 200 (6 600) (4 800) 4 800 (1 800)
Land 650 000 500 000 150 000 49 500 49 500 (12 000) (12 000) (12 000)
Research and development 50 000 0 50 000 16 500 33 000 (16 500) (4 000) (4 000) (20 500)
2 891 000 2 475 000
Liabilities
Accounts payable 110 000 110 000
Provision – warranty 135 000 0 135 000 44 550 36 300 (8 250) (10 800) 10 800 2 550
Provision – employee benefits 175 000 0 175 000 57 750 47 850 (9 900) (14 000) 14 000 4 100
Revenue received in advance 0 0 16 500 16 500 16 500
Debentures 933 000 1 000 000 67 000 22 110 27 720 (5 610) (5 360) (5 360) (10 970)
1 353 000 1 110 000
Net assets 1 538 000 1 365 000

189 090 132 000 177 870 127 050 6 270 (45 840) (32 000) (13 840) (12 000) 4 430
(7 570)
Change in DTA +4 950 –32 000
The net deferred tax expense of $6 270 (excluding effect of tax rate change) is equal to the net increase in the DTL ($11 220) less the net increase in
the DTA ($4 950). It is possible to use the net amounts in the journal entries. However, it may be preferable to segregate the impact of the increments
and decrements since this will facilitate the disclosures required by AASB 112.
(d) Journal entries

In the journal entries below we have separated deferred tax revenue and deferred tax expense, and
changes to DTAs and DTLs due to the new tax rate (and associated deferred tax revenue and
deferred tax expense) as these amounts are needed to make the detailed note disclosures required by
AASB 112.
20X2
CR Income tax payable 84 480

Recognition of deferred tax revenue and increase in deferred tax
asset due to deductible temporary difference arising in the
reporting period.

Recognition of deferred tax expense and increase in deferred tax
liability due to taxable temporary difference arising in the
reporting period.

from 33% to 25%

from 33% to 25%; the DTL changes by $45 840, $12 000 relates
to revaluation of land and is recognised as other comprehensive
profit (see worksheet), and the balance $45 840 – $12 000 =
$33 840) is recognised as deferred tax revenue.

Transfers balance of deferred tax revenue ($4950 + $33 840 =
$38 790), deferred tax expense ($11 220 + $32 000 = $43 220)
and current tax expense ($84 480) to tax expense (revenue)
account
10.28 Comprehensive current tax and tax-effect accounting
(a) Current tax expense and amount payable to taxation authorities
• The first step is to calculate the amounts for the allowable deductions and assessable income
from the data provided.
1 Sales revenue and wages and salaries expense
The amounts for sales revenue and wages and salaries1 would be the same for both tax and
accounting purposes.
2 Dividend revenue
The data does not indicate if the dividends are franked or if they are not if they are subject to
the rebate provisions. It has been assumed that either one or other of these conditions are
satisfied; therefore, the dividends are effectively not subject to income tax.
3 Other revenues
Accrued revenues receivable Interest Royalties
SOP balance 275 000 745 000
Revenue for period 850 000 1 450 000
1 125 000 2 195 000
EOP balance 300 000 920 000
Amount received 825 000 1 275 000
4 Depreciation of taxation purposes

Buildings Plant Equipment
Cost 3 200 000 2 100 000 750 000
Useful life (years) 40 10 8
Annual depreciation deduction 80 000 210 000 93 750
Accumulated depreciation 2006 EOP (2 years) 160 000 420 000 187 500
5 Impairment of plant revenue

There is no allowable deduction for impairment of the plant.
6 Other allowable deductions

Amount of expenditure 1 650 000
Plus 25% additional tax deduction 412 500
2 062 500
Bad debts (debt recognised as non-recoverable)

SOP balance 95 000
Expense for period 142 500
237 500
EOP balance 182 000
Debts recognised as bad in reporting period 55 500
1
Wages and salaries allowable deduction is determined using accrual basis rather than cash basis.
It has been assume that there is no amount that relates to accrued annual leave, which is an
allowable deduction only when leave is taken.
Interest payable
SOP balance 100 000
Expense for period 305 000
405 000
EOP balance 100 000
Interest paid during period 305 000
Accrued provisions LSL Warranty

SOP balance 245 000 115 000
Expense for period 235 000 195 000
480 000 310 000
EOP balance 355 000 130 000
Long service leave paid during the period 125 000 180 000
7 Cost of goods sold income tax deduction

The amount will differ for income tax purposes only if one or more of the following
conditions are satisfied:
(i) a different inventory flow assumption is adopted for income tax purposes (which would
result in the tax base and accounting base differing) – assuming that the tax law allows a
different flow assumption; or
(ii) when some of the inventory is impaired and the carrying amount is measured using the
lower of cost and net realisable value; or
(iii) when inventory at the start or end of the financial period includes items exchanged in an
intra-group transaction at a mark-up or mark-down (but this is only relevant when
consolidated financial statements are prepared – see chapters 18–20).
There is no indication in the data that either of these conditions is satisfied. In Australia
absorption costing is required for both accounting and income tax purposes, so that should not
give rise to any differences in the carrying amount and tax base of inventory.
Calculation of taxable income and amount of current tax expense:

20X7 20X7
Accounting Tax
Expenses Revenues Expenses Revenues
Sales revenue 9 245 000 9 245 000
Interest revenue 850 000 825 000
Royalties revenue 1 450 000 1 275 000
Dividend revenue 150 000 0
Depreciation – building 147 500 80 000
Depreciation – plant 262 500 210 000
Depreciation – equipment 75 000 93 750
Impairment expense – plant 250 000 0
Research and development expenditure 1 650 000 2 062 500
Cost of goods sold 4 005 000 4 005 000
Warranty expense 195 000 180 000
Wages and salaries 3 475 000 3 475 000
Long service leave expense 235 000 125 000
Interest expense 305 000 305 000
Rates and taxes on property 145 500 145 500
Doubtful debts expense 142 500 55 500
10 888 000 11 695 000 10 737 250 11 345 000

Current tax expense (30% of taxable income)
(rounded to nearest dollar) 182 325
(b) SOP and EOP DTAs and DTLs, and deferred tax expense and deferred tax revenue
Supporting calculations – determination of carrying amounts and tax bases:
20X8 20X7
Accounting Tax Accounting Tax
Buildings
Cost 3 200 000 3 200 000 3 200 000 3 200 000
SOP Accumulated depreciation 295 000 160 000 295 000 160 000
SOP carrying amount 2 905 000 3 040 000
Depreciation expense 147 500 80 000
EOP carrying amount 2 757 500 2 960 000 2 905 000 3 040 000
Plant
Cost 2 100 000 2 100 000 2 100 000 2 100 000
SOP carrying amount 1 575 000 1 680 000
Accumulated impairment 250 000
EOP carrying amount 1 062 500 1 470 000 1 575 000 1 680 000
20X8 20X7
Accounting Tax Accounting Tax
Equipment
Cost 750 000 750 000 750 000 750 000
SOP carrying amount 600 000 562 500
EOP carrying amount 525 000 468 750 600 000 562 500
Land
Cost 2 500 000 2 500 000 2 500 000 2 500 000
Revaluation increment 725 000
3 225 000 2 500 000 2 500 000 2 500 000
Items with a zero tax base: Most accrued revenues and expense have a zero tax base. Here the tax
base of accrued revenues (interest receivable and royalties receivable) are both zero, and for the
accrued expenses (interest payable, and those resulting from the creation of provisions – warranty
and long service leave) the tax base is also zero.
Other items: The tax base of accounts receivable is the amount before estimated uncollectible
amount. The carrying amount is the amount after estimated uncollectible amount.
The calculation of the SOP temporary differences and DTAs and DTLs is in the partial worksheet
below) and the EOP temporary difference, DTAs and DTLs and the amounts for deferred tax
revenue and deferred tax expenses are given in the worksheet on page 61.
Financial Perfection Ltd: Partial deferred tax worksheet (SOP amounts)

Temporary
SOP differences SOP
CA TB Taxable Deductible DTL DTA
Assets
Accounts receivable 280 000 375 000 95 000 28 500
Interest receivable 275 000 0 275 000 82 500
Royalties receivable 745 000 0 745 000 223 500
Plant 1 575 000 1 680 000 105 000 31 500
Equipment 600 000 562 500 37 500 11 250
Building 2 905 000 3 040 000 135 000 40 500
Land 2 500 000 2 500 000
8 880 000 8 157 500
Liabilities
Interest payable 100 000 0 100 000 30 000
Wages and salaries payable 265 000 265 000
Provision – Warranty claims 115 000 0 115 000 34 500
Provision – Long service leave 245 000 0 245 000 73 500
725 000 265 000
Net assets 8 155 000 7 892 500
Financial Perfection Ltd: Partial deferred tax worksheet for period ending 30 June 20X7
EOP Temporary EOP SOP Deferred Tax rate change Other Profit or
differences tax Increase Increase Deferred tax compre-
expense (decrease) (decrease) expense hensive loss
Assets
Accounts receivable 493 000 675 000 182 000 54 600
28 500 (26 100) (9 100) 9 100 (17 000)
Interest receivable 300 000 0 300 000 90 000 82 500
7 500 (15 000) (15 000) (7 500)
Royalties receivable 920 000 0 920 000 276 000 223 500
52 500 (46 000) (46 000) 6 500
Plant 1 062 500 1 470 000 407 500 122 250 31 500 (90 750) (20 375) 20 375 (70 375)
Equipment 525 000 468 750 56 250 16 875 11 250 5 625 (2 813) (2 813) 2 813
Building 2 757 500 2 960 000 202 500 60 750 40 500 (20 250) (10 125) 10 125 (10 125)
Land 3 250 000 2 500 000 750 000 225 000 225 000 (37 500) (37 500) 187 500
9 308 000 8 073 750
Liabilities
Interest payable 100 000 0 100 000 30 000 30 000 0 (5 000) 5 000 5 000
Wages and salaries payable 345 000 345 000
Provision – warranty claims 130 000 0 130 000 39 000 34 500 (4 500) (6 500) 6 500 2 000
Provision – long service
leave 355 000 0 355 000 106 500 73 500 (33 000) (17 750) 17 750 (15 250)
930 000 345 000
607 875 413 100 317 250 238 500 116 025 (101 313) (68 850) (32 463) 187 500 (103 938)
Change in DTA +174 600

The net deferred tax expense of $116 025 (excluding effect of tax rate change) is equal to the net increase in the DTL ($290 625) less the net increase in the
DTA ($174 600). It is possible to use the net amounts in the journal entries. However, it may be preferable to segregate the impact of the increments and
decrements since this will facilitate the disclosures required by AASB 112. Note that the amount for deferred tax included in period profit or loss is
$103 937.50 and has been rounded upwards (this is due to the rounding up of the amount for plant from $2812.50 to $2813
(c) Journal entries
In the journal entries below we have separated deferred tax revenue and deferred tax expense, and
changes to DTAs and DTLs due to the new tax rate (and associated deferred tax revenue and
deferred tax expense) as these amounts are needed to make the detailed note disclosures required by
AASB 112.
20X7

Recognition of deferred tax revenue and net increase in deferred
tax asset due to deductible temporary difference arising in the
reporting period.

Recognition of deferred tax expense and net increase in
deferred tax liability due to taxable temporary difference arising
in the reporting period. Of this amount, $225 000 relates to the
asset revaluation and is recognised in other comprehensive
profit (reduces asset revaluation reserve) and the balance of
$65 625 ($290 625 – $225 000), relates to period profit or loss

from 30% to 25%

from 30% to 25%; the DTL changes by $101 313, $37 500
relates to revaluation of land and is recognised as other
comprehensive profit (see worksheet), and the balance
($101 313 – $37 500 = $63 813) is recognised as deferred tax
revenue.
account, the journal entry would be:

Transfers balance of deferred tax revenue ($174 600 + $63 813
= $25 650), deferred tax expense ($65 625 + $68 850 =
$30 200) and current tax expense ($76 800) to tax expense
(revenue) account
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APPENDIX VII
The following serving officers of the 1st and 2nd Battalions were
awarded brevet rank for service in the field:—
Brevet Colonel:
Major and Bt. Lt.-Colonel C. ’L. Porter.
Brevet Lieutenant-Colonel:
Majors R. Bright, H. Findlay, H. W. Green, L. W. Lucas, R.
McDouall, C. ’L. Porter, H. B. Potter, R. E. Power, L. H.
Soames, H. A. Thewles and W. H. Trevor.
Brevet Major:
Captains W. R. Corrall, A. G. Kenchington and the Hon. P. G.
Scarlett, and Lieut. A. S. Smeltzer (on promotion to Captain).
LIST OF SUBSCRIBERS
Mrs. Adam
Sir Sidney Alexander, Kt., M.D.
Captain H. E. Allen
J. E. Amos, Esq.
Rev. G. Archer, M.A.
Major H. L. Archer Houblon
P. R. Asprey, Esq., M.C.
Major-General Sir E. G. T. Bainbridge, K.C.B.

Captain H. H. C. Baird, D.S.O.
Mrs. Baly
Colonel A. S. Barham, C.M.G., V.D.
Captain S. L. P. Barker
Lt.-Colonel W. G. F. Barnard, D.S.O.
J. J. Beall, Esq.
R. Beer, Esq.
Major M. Beevor, D.S.O.
J. P. Bell, Esq.
Mrs. Charles Blackall
Major H. Blackburn
Maurice L. Blaxall, Esq.
Colonel J. Body, D.S.O., O.B.E., etc.
Major W. H. Booth, D.S.O., O.B.E.
Colonel Sir Theodore Brinckman, Bt., C.B.
Mrs. Anthony Brown
R. G. Bullock, Esq.
Major G. K. Burge
Major E. B. Burns
Edwin Buss, Esq.
A. G. Butler, Esq.
Marquess Camden
Major A. F. Campbell-Johnston
Captain L. P. Causton, M.C.
W C N Chapman Esq
W. C. N. Chapman, Esq.
Borough of Chatham
W. E. Church, Esq.
C. J. Clark, Esq.
G. Foster Clark, Esq.
Major Eric Clarke
D. C. Coates, Esq.
Major C. C. Cobbe
Colonel A. H. Coles, C.M.G., D.S.O.
Major A. E. Colley
Mrs. Collison-Morley
Captain C. L. Connellan
Colonel F. S. W. Cornwallis, C.B.E., D.L., etc.
Captain and Bt. Major W. R. Corrall, M.C.
W. H. Cronk, Esq.
Major J. Crookenden, D.S.O.
J. C. T. Crozier, Esq.
Major V. T. Dampier Palmer, O.B.E.

Colonel G. V. Dauglish
Mrs. C. L. Davis
G. T. Davis, Esq.
J. E. W. Dell, Esq.
Mrs. Docking
J. A. Druce, Esq., J.P.
Mrs. Dungey
Lt.-Colonel F. M. Dunstan, T.D.
Major F. Bradley Dyne
Lt.-Colonel W. A. Eaton, O.B.E.

Major R. P. S. Elderton
Colonel F. K. Essell, C.M.G.
Lt.-Colonel C. S. Fellows
Mrs. Figgis
Br.-General E. H. Finch Hatton, C.M.G., D.S.O.
Colonel H. Findlay, C.B.E.
W. R. Findlay, Esq.
Mrs FitzRoy Cole
Mrs. FitzRoy Cole
Borough of Folkestone
Mrs. Forde
J. Fort, Esq.
E. Foster Hall, Esq.
P. R. H. Fox, Esq., M.C.
Mrs. Fradgley
Lt.-Colonel R. S. I. Friend, D.S.O.
H. H. J. Froome, Esq.
Walter Furley, Esq.
Mrs. Glyn
Mrs. Goff
Colonel Viscount Goschen, C.B.E.
L. A. Goss, Esq.
Mrs. Gould
Mrs. Green
Mrs. Greig
Major A. C. Grigg
Lt.-Colonel R. G. D. Groves-Raines, D.S.O.
Major H. T. Gullick
D. H. Hamill-Stewart, Esq.
Captain G. F. Hamilton, M.C.
Captain J. Hamilton
Egerton Hammond, Esq.
Major H. S. Hardy, M.B.E., M.C.
Colonel the Rt. Hon. Baron Harris, G.C.S.I., G.C.I.E., etc.
Miss E. J. Harris
Captain N. S. Hart
Major G. T. D. Hickman
Br.-General R. A. Hickson, C.B.
George Hilder, Esq.
Br.-General H. C. de la M. Hill, C.B., C.M.G.
Mrs. W. Hinkley
Mrs. Hirst
Mrs. Hollis
Mrs. Hollist
M H
Mrs. Homan
Colonel J. F. Honeyball
Captain G. R. Howe
T. Rowlatt Hubbard, Esq.
Lt.-Colonel L. I. B. Hulke, C.M.G.
Mrs. Ingouville-Williams
Major J. V. R. Jackson
Colonel W. E. R. Kelly
Mrs. Kelsey
G. F. Kingham, Esq.
Major C. P. Kingsland
A. Kitchin, Esq.
C. R. B. Knight, Esq.
Lt.-Colonel L. C. E. Knight
Mrs. Laing
Captain W. C. Lamarque
H. Lea-Smith, Esq.
Major G. Lee, D.S.O., M.C.
Mrs. Harry Lee
A. C. Leney, Esq.
Colonel D. F. Lewis, C.B.
D. S. Lister, Esq., M.C.
J. H. Loudon, Esq.
Major and Bt. Lt.-Colonel L. W. Lucas, D.S.O., M.C.
G. L. Lushington, Esq.
Major-General Sir A. L. Lynden-Bell, K.C.B., K.C.M.G.
Lt.-Colonel R. McDouall, C.B., C.M.G., etc.

W. A. Macfadyen, Esq., M.C.
S. W. Marchant, Esq.
Major R. G. A. Marriott, D.S.O.
Rev. W. Mathias, M.A.
Major G. A. Meakin
Lt.-Colonel L. C. R. Messel, O.B.E.
J W Millard Esq
J. W. Millard, Esq.
Viscount Milner, K.G., G.C.B., etc.
G. H. Mitchell, Esq.
Lady Mitchell
Mrs. Monins
Captain J. E. Monins
Mrs. G. Moke-Norrie, C.B.E.
Captain H. C. Morley
E. Morgan, Esq.
H. de R. Morgan, Esq.
Captain H. de R. Morgan, D.S.O.
G. J. Nettleton, Esq.
J. H. Newcomb, Esq.
J. Newton Moss, Esq.
Captain W. H. Nicholas
Mrs. Noott
Cecil Norman, Esq.
Lady Northcote
Captain C. H. P. O’Hagan
F. J. Oliver, Esq.
Rev. E. A. Ommanney, M.A.
H. D. Oxley, Esq.
General the Rt. Hon. Sir Arthur Paget, P.C., G.C.B., etc.
Captain A. J. Peareth
T. N. Penlington, Esq.
Lt.-Colonel F. Phillips, D.S.O., M.C.
R. H. Plumb, Esq.
Major G. A. Porter
Lt.-Colonel R. E. Power, D.S.O.
Mrs. Prescott-Roberts
Captain R. K. Price
Captain T. R. Price
P.R.I. 1st Battalion The Buffs
P.R.I. 2nd Battalion The Buffs
P.R.I. 3rd Battalion The Buffs
P R I Depot The Buffs
P.R.I. Depot The Buffs
Lady Raines
Captain L. A. Ramsay
Lt.-Colonel A. L. Ransome, D.S.O., M.C.
A. H. Reed, Esq.
Major F. S. Reeves
Captain N. D. Rice
Mrs. Romer
Mrs. J. McB. Ronald
W. E. Rootes, Esq.
John Russell, Esq.
A. H. Ruston, Esq.
Mrs. Kennedy Sandilands

Borough of Sandwich
G. E. Sankey, Esq.
W. Sankey, Esq.
G. D. Saunders, Esq.
Captain W. Stewart Savile
Captain and Bt. Major the Hon. P. G. Scarlett, M.C.
J. Scrace, Esq.
Millin Selby, Esq.
A. R. Sewell, Esq.
E. B. Sewell, Esq.
Mrs. Sherren
Mrs. Shervinton
H. J. Skelton, Esq.
Major L. Howard Smith
Lt.-Colonel H. F. Sparrow
Mrs. Spicer
Mrs. Stallworthy
Lt.-Colonel G. N. Stephen
Miss Taylor
G. Hutton Taylor, Esq.
W. Taylor, Esq.
Major H. A. B. Ternan, O.B.E.
Major and Bt Lt Colonel H A Thewles D S O
Major and Bt. Lt.-Colonel H. A. Thewles, D.S.O.
Captain A. B. Thomson, M.B.E.
G. Thorn-Drury, Esq., K.C.
F. E. Thornhill, Esq.
Mrs. Tomlinson
Miss Tomlinson
Major F. W. Tomlinson
Lt.-Colonel W. H. Trevor, D.S.O.
Major H. J. Trueman
Colonel Sir Courtenay B. Vyvyan, Bt., C.B., C.M.G.
Mrs. J. T. Waite
F. N. Walker, Esq.
G. S. Wallis, Esq.
Mrs. Eldred Warde
Mrs. Warnington
R. M. Watson, Esq.
Mrs. Webb
R. M. Webster, Esq.
J. T. Welldon, Esq.
Captain T. Wheler
Captain F. Whitaker, M.C.
Captain D. A. Wilkins, M.B.E.
Miss Willats
Mrs. Williamson
J. R. Willows, Esq.
Mrs. Wolstenholme
R. G. Wood, Esq.
FOOTNOTES:
[1] A letter from Lt.-Colonel R. McDouall.
[2] To commemorate the connection of the Buffs with Christ’s
College, a gold beaker has recently been presented to the 1st
Battalion by Sir A. E. Shipley, G.B.E., Master of Christ’s College.
[3] Julian Hasler recovered from his wounds, rejoined the
battalion in December and was given command of the 11th
Brigade in February, 1915. He was unhappily killed on the 26th
April, 1915. His fine fighting qualities ensured his success as a
soldier, whilst his great personal charm secured him many more
firm friends than most of us can claim; his death was deeply
mourned not only by the regiment, but throughout the army.
Born on the 16th October, 1868, he joined the Buffs in 1888.
He saw service in Chitral (1895), N.W. Frontier (Malakand, etc.,
1897–8), South African War (1899–1902; brevet major), N.
Nigeria (1903, Kano-Sokoto campaign), N. Nigeria (1906; in
command; brevet lieutenant-colonel). He was promoted brevet-
colonel 11th January, 1910.
[4] Robert George Kekewich, second son of Trehawke
Kekewich, of Peamore, Devon, was born on the 17th June, 1854,
and joined the Buffs on the 2nd December, 1874. He fought in the
Perak expedition of 1875–6, and in the Soudan, 1884–5, where
he gained a brevet majority. He was employed as D.A.A.G. in the
Soudan campaign of 1888, and afterwards as military secretary to
the C.-in-C., Madras, and was engaged in the operations in
Burma 1892–3. He was promoted into the Loyal Regiment (North
Lancashire) and commanded the 1st Battalion of that regiment in
the South African War. He commanded the garrison during the
siege of Kimberley; received the rank of brevet-colonel and the
C.B., and in August, 1902, was specially promoted major-general.
He was appointed colonel of the Buffs on the 5th October, 1909.
[5] Arthur Henry Fitzroy Paget, eldest son of General Lord
Alfred Paget, was born on the 1st March, 1851, and entered the
Scots Guards in 1869. He served in the Ashanti War, 1873; in the
Soudan, 1885; in Burma, 1887–8, and again in the Soudan in
1888–9. He commanded the 1st Scots Guards in the South
African War and later the 20th Brigade, being specially promoted
major-general. He commanded the 1st Division from 1902–6,
during which time he received the C.B. and the K.C.V.O. and was
promoted lieutenant-general. He was made a K.C.B. in 1907, and
the following year was appointed G.O.C. Eastern Command. He
was an Aide-de-camp General to His Majesty from 1910–14. In
1912 he was appointed General Officer Commanding-in-Chief the
Forces in Ireland and advanced to the dignity of Privy Councillor,
and the following year was promoted general and received the
G.C.B. In January, 1915, General Paget was sent on a Special
Mission to Russia and the Balkan States and was received by the
Tzar of Russia and the Kings of Roumania, Bulgaria, Servia and
Greece. The following year he was sent by His Majesty King
George V to convey the Field-Marshal’s baton to the Tzar of
Russia. In 1917 he visited Verdun, representing His Majesty, to
confer on that town the Military Cross.
[6] Captain Blackall, an old Militia and Special Reserve officer,
was killed on the 24th March, 1918, whilst attached to the 4th
South Staffordshire Regiment.
[7] “Other chambers in College were occupied by officers of the
Buffs, and these officers had their ante-room in VIIth Chamber
and their mess in College Hall. Hence the small oak shield,
carved with the Buffs’ Dragon, which may now be seen on the
north side of the Hall. This was a parting gift from Captain F. W.
Tomlinson.”—The Wykehamist, No. 538, February, 1915.
[8] This half-company, under Major R. E. Power, had not
rejoined the battalion the previous night, having been detailed to
occupy an unfinished trench in the front line. Lieut. J. W. Butts
Archer was killed whilst superintending a working party.
[9] Augustus David Geddes was born on the 6th June, 1866,
and joined the Buffs on the 5th February, 1887; he was adjutant of
the 2nd Battalion from 1898 until 1900, when he was severely
wounded, in the South African War. After being some years on
the staff, he was promoted to command the 2nd Battalion in 1911.
[10] No. L/8907 Pte. David Alexander served in France
continuously throughout the war until he was killed a few weeks
before the Armistice, having won the Military Medal and attained
the rank of company sergeant major.
[11] In those days many firms promised extravagant terms to
those of their employees who enlisted, but in many cases such
undertakings were not fulfilled. Messrs. Cory and Son, let it be
said to their undying credit, played the game throughout by their
men and their dependents, and were moreover the most liberal
supporters of any fund that was for the benefit of the battalion.
[12] The Dean, the Very Rev. Henry Wace, D.D., in arranging
the service wrote as follows: “I assure you we regard it as one of
our first and most honourable duties in the Cathedral to welcome
the County Regiment.”
[13] “A4 Boys” were lads of eighteen passed fit, but retained at
home for a year on account of age.
[14] Claude Arthur Worthington, son of Captain Arthur
Worthington of the Buffs, who carried the Colour into Sevastopol,
was born on the 25th May, 1874, and joined the Buffs in 1898. He
served with the 2nd Battalion in the South African War, acting as
adjutant from February to May, 1900. He was later adjutant of the
2nd Battalion from 1905–8.
[15] This operation was known as “mopping up” and really
meant finishing and completing work that the leading troops had
to leave undone, such as the capture of men remaining in the
dug-outs and so on.
[16] The following is an extract from a letter to Sir Courtenay
Vyvyan (late the Buffs) from the A.A.G. 6th Division:—
“Your old battalion is going very strong. It is
commanded by Green, and Gould is second in
command. Otherwise I don’t suppose you know anyone.
They did splendidly on the Somme and never lost their
discipline for a moment. I saw them on parade after the
fight of the 13th/18th September, when they only had
314 men left, and they might have been parading for
the King’s birthday. It really was a magnificent sight.”
[17] This Union Jack now hangs in Canterbury Cathedral, it
having been later on presented to the battalion as a trophy; later
on still it was handed over for safe custody to the Dean and
Chapter and accepted by them at a grand ceremony held in the
Cathedral at which were present many of the Buffs, particularly of
the 5th Battalion, amongst whom was Captain G. K. Harrison, the
man who had hoisted it on the 11th March.
[18] Wadi is the Arabic for watercourse or river-bed; as a rule
innocent of water, but occasionally, during the rains, rushing
torrents.
[19] Beit is the Arabic for house, and so comes to mean village.
[20] These cadet schools were started after the war had been
some time in progress, and when they were established
commissions were no longer given except to graduates.
[21] This officer belongs to the Royal Fusiliers and went to
France as adjutant to the 8th Battalion of that regiment, being
promoted to command the 6th Buffs in March, 1916. He twice
won the D.S.O.
[22] Regimental sergeant-major.
[23] For an example of the “leap-frog” method, see pp, 385–7.
[24] No. 4181 Sgt. Moon had been recommended for the V.C.
the previous August for gallant conduct at Zillebeke, where he
received his death wounds.
[25] See page 269.
[26] This officer was killed in action at Sanctuary Wood on the
3rd June, 1918, as major-general commanding the 3rd Canadian
Division.
[27] B.E.F., 42; C.E.F., 215.
[28] These were actually officers of Q.O.R. before leaving
Canada, and are separate to above.
[29] This was the first practical illustration of the German
method of infiltration which had lately been introduced and which
now influences our own tactics. Blobs of Germans with light guns
could be seen advancing wherever they could make progress—
wherever they saw a “soft spot.”
[30] One of these, Pte. A. C. Coleman, won the D.C.M., the
M.M. and the M.S.M.
[31] These two young men served right through the war from
the landing of the battalion till the armistice, and always with
distinction. They both got bars to their M.M.’s for this day’s work.
[32] Captain and Brevet Lt.-Colonel A. L. Ransome, D.S.O.,
M.C., went to France at the beginning of the war as adjutant of
the 1st Battalion of the Dorsetshire Regiment, and after serving
as Brigade Major of the 15th Infantry Brigade was appointed
Commanding Officer of the 7th Buffs in February, 1916, with
which he served without a break till September, 1918.
[33] Z + a number means that number of minutes after zero
hour.
[34] This was written before the 5th Battalion ceased to exist as
such.
[35] The appendices have been compiled by Major F. W.
Tomlinson, Hon. Sec. of the Buffs’ History Committee, with the
assistance of Miss Olive Tomlinson and Major E. F. Gould, to
whom he offers his grateful thanks, as well as to the War Office
and Officer in Charge of Records. The names of the dead have
been taken from the official lists, but corrected and amplified as
far as possible; they correspond with the names in the Roll of
Honour which is to be placed in Canterbury Cathedral, in the
Warriors’ Chapel.
[36] Medal of St. George, 3rd Class.
[37] Both these officers won clasps to their D.S.O. whilst
commanding battalions of the Buffs.
Transcriber’s Notes:
1. Obvious printers’, punctuation and spelling errors have been corrected

silently.
2. Where hyphenation is in doubt, it has been retained as in the original.
3. Some hyphenated and non-hyphenated versions of the same words have

been retained as in the original.
*** END OF THE PROJECT GUTENBERG EBOOK HISTORICAL
RECORDS OF THE BUFFS, EAST KENT REGIMENT (3RD FOOT)
***
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Company Accounting Australia New

Zealand 5th Edition Jubb Solutions

Company Accounting Australia New Zealand 5th Edition

Business Statistics Australia New Zealand 7th Edition

Introduction to Language Australia and New Zealand 8th

Moral Issues in Business Australia New Zealand 3rd

Business statistics Australia New Zealand 6th Edition

Introduction to Language Australia And New Zealand 9th

Principles of Economics Australia and New Zealand 6th

Accounting Practices The New Zealand Context 3rd

Accounting profit is determined in the accounting records as:

Taxable Income is determined for tax purposes as:

10.4 What is a deductible temporary difference? Give two examples of

Examples of circumstances creating deductible temporary difference include:

10.5 What is a taxable temporary difference? Give two examples of taxable

This term is defined in the glossary as follows:

Examples of taxable temporary difference include:

Deferred tax expense (revenue):

10.7 ‘Items recognised as other comprehensive profit do not impact on the

10.8 What is the conceptual basis of tax-effect accounting? Do you agree

10.13 Explain the difficulties in using the recognition criteria in the

10.14 Differences in pre-tax accounting profit and taxable income

Schedules for Kelly Limited (a) and (b):

7= 6x30% Income tax payable @ 30% – 2 400 12 000 18 000 32 400

1 Here we have used terminology in AASB 137.

10.15 Differences in pre-tax accounting profit and taxable income

Schedules for Houghton Limited (a) and (b):

10.16 Tax effect accounting: Simple

(a) Schedules for Tahir Ltd:

6=5x30% Income tax payable @ 30% 3 300 7 500 7 800 18 600

EOP Temporary differences EOP SOP Deferred tax Other

Dr Deferred tax expense 2 400

Dr Tax expense (revenue) 5 700

Dr Deferred tax expense 2 400

Dr Tax expense (revenue) 9 900

Dr Deferred tax liability 4 800

Dr Tax expense (revenue) 3 000

10.17 Tax effect accounting: Simple

(a) Schedules for Craig Ltd:

6=5x30% Income tax payable @ 30% 3 000 3 300 3 900 10 200

EOP Temporary differences EOP SOP Deferred tax Other

Dr Deferred tax asset 1 200

Dr Tax expense (revenue) 1 800

Dr Deferred tax asset 1 200

Dr Tax expense (revenue) 2 100

Dr Deferred tax expense 2 400

Dr Tax expense (revenue) 6 300

10.18 Tax effect accounting: Multiple items

Taxable income and current tax expense for 20X1

Taxable income and current tax expense for 20X2

Temporary Deferred tax Other Profit or

1 200 2 100 0 0 (900) 0 (900)

2 400 1 800 1 200 2 100 1 500 0 1 500

Dr Deferred tax asset 2 100

Dr Tax expense (revenue) 60 600

Cr Deferred tax expense 1 500

Dr Tax expense (revenue) 45 300

Dr Deferred tax asset 2 100

Dr Deferred tax expense 1 200

Dr Tax expense (revenue) 60 600

Dr Deferred tax expense 300

Dr Deferred tax expense 1 200

Dr Tax expense (revenue) 45 300

10.19 Tax effect accounting: Multiple items