Income taxs & Deferred Taxes Kitty Limited was incorporated in Jan 20X0. Its financial year end was 31 Dec. The followin
Posted: Wed Apr 27, 2022 10:36 am
Income taxs & Deferred Taxes
Kitty Limited was incorporated in Jan 20X0. Its financial year
end was 31 Dec. The following issues had not been included into
Kitty's Ltd's financial statements for the year ended 31 Dec
20X1
Issue 1: Deferred tax
No deferred tax has been provided since its establishment. Here
is the draft statement of financial position as at 31 Dec 20X0
and 31 Dec 20x1:
Issue 4: Theft of inventory
On 25 January 20X2, it was found that the store manager stole
inventory of $600,000 from the warehouse. Kitty Limited reported
the case to the police and the case was under investigation.
Question:
a) Refer to Issue 1, determine the deferred tax impact for Kitty
Limited for 20X0 and 20X1 and
prepare the journal entries to record the deferred tax for the
years ended 20x0 and 20x1.
b) Refer to Issue 2, 3 and 4, provide advice on the
appropriate accounting treatments for these issues
(based on the relevant accounting standards and prepare the
relevant accounting journal entries)
Property, plant and equipment Investments Research and development cost Inventory Accounts receivable Bank Total assets Long service provision Accrued expenses Accounts payable Income tax payables Other payables Total liabilities Share capital Retained earnings 20x0 20X1 Carrying amount Tax base Carrying amount Tax base $'000 $'000 $'000 $'000 12,000 11,600 22,000 20,000 8,000 8,000 2,000 2,000 3,000 3,600 800 400 1,800 1,000 600 600 1,000 800 400 400 600 600 24,800 31,000 1,400 1,800 1,000 1,400 600 540 900 640 400 400 700 700 100 3,500 4,800 20,000 20,000 20,000 20,000 1,300 60 6,200 3,060 24,800 31,000
Kitty Limited had determined that it was probable that taxable profits would be available in future against which any resulting deferred tax assets could be utilized. The Revenue Department allowed Kitty Limited to offset current tax assets against current tax liability. The tax rates for 20x0 and 20X1 were 20%. Issue 2: Useful life of motor van A motor van was purchased in January 20x0 for delivery purpose. It cost $100,000. The estimated useful life was 10 years. In January 20x1, the motor van was seriously damaged. The remaining useful life was expected to be two years. Issue 3: Prior period error In the review of the financial records of 20x0, Kitty Limited discovered that there was an under-statement of $6,000,000 in the cost of sales in the financial statements for the year ended 20x0.
Statement of profit or loss and other comprehensive income (extract): 20X0 (reported) 20X1 (draft) $'000 $'000 Sales 100,000 90,000 Cost of sales (40,000) (70,000) Profit before tax 60,000 20,000 Income tax (1,000) (800) Profit for the year 59,000 19,200
Kitty Limited was incorporated in Jan 20X0. Its financial year
end was 31 Dec. The following issues had not been included into
Kitty's Ltd's financial statements for the year ended 31 Dec
20X1
Issue 1: Deferred tax
No deferred tax has been provided since its establishment. Here
is the draft statement of financial position as at 31 Dec 20X0
and 31 Dec 20x1:
- Income Taxs Deferred Taxes Kitty Limited Was Incorporated In Jan 20x0 Its Financial Year End Was 31 Dec The Followin 1 (65.02 KiB) Viewed 33 times
- Income Taxs Deferred Taxes Kitty Limited Was Incorporated In Jan 20x0 Its Financial Year End Was 31 Dec The Followin 2 (25.85 KiB) Viewed 33 times
- Income Taxs Deferred Taxes Kitty Limited Was Incorporated In Jan 20x0 Its Financial Year End Was 31 Dec The Followin 3 (35.5 KiB) Viewed 33 times
On 25 January 20X2, it was found that the store manager stole
inventory of $600,000 from the warehouse. Kitty Limited reported
the case to the police and the case was under investigation.
Question:
a) Refer to Issue 1, determine the deferred tax impact for Kitty
Limited for 20X0 and 20X1 and
prepare the journal entries to record the deferred tax for the
years ended 20x0 and 20x1.
b) Refer to Issue 2, 3 and 4, provide advice on the
appropriate accounting treatments for these issues
(based on the relevant accounting standards and prepare the
relevant accounting journal entries)
Property, plant and equipment Investments Research and development cost Inventory Accounts receivable Bank Total assets Long service provision Accrued expenses Accounts payable Income tax payables Other payables Total liabilities Share capital Retained earnings 20x0 20X1 Carrying amount Tax base Carrying amount Tax base $'000 $'000 $'000 $'000 12,000 11,600 22,000 20,000 8,000 8,000 2,000 2,000 3,000 3,600 800 400 1,800 1,000 600 600 1,000 800 400 400 600 600 24,800 31,000 1,400 1,800 1,000 1,400 600 540 900 640 400 400 700 700 100 3,500 4,800 20,000 20,000 20,000 20,000 1,300 60 6,200 3,060 24,800 31,000
Kitty Limited had determined that it was probable that taxable profits would be available in future against which any resulting deferred tax assets could be utilized. The Revenue Department allowed Kitty Limited to offset current tax assets against current tax liability. The tax rates for 20x0 and 20X1 were 20%. Issue 2: Useful life of motor van A motor van was purchased in January 20x0 for delivery purpose. It cost $100,000. The estimated useful life was 10 years. In January 20x1, the motor van was seriously damaged. The remaining useful life was expected to be two years. Issue 3: Prior period error In the review of the financial records of 20x0, Kitty Limited discovered that there was an under-statement of $6,000,000 in the cost of sales in the financial statements for the year ended 20x0.
Statement of profit or loss and other comprehensive income (extract): 20X0 (reported) 20X1 (draft) $'000 $'000 Sales 100,000 90,000 Cost of sales (40,000) (70,000) Profit before tax 60,000 20,000 Income tax (1,000) (800) Profit for the year 59,000 19,200