ACC 723 Advanced Financial accounting and Reporting

Semester one, 2019

TUTORIAL ONE QUESTIONS

1. Why accounting for income tax should consider both

current tax and deferred tax.
2. Explain why income tax expense is usually not equal to
accounting profit multiplied by the corporate tax rate.
Your answer should refer to the main principles of
accounting for income tax.

3. Accounting profit is based on a full accrual model

whereas taxable profit is based on a partial accrual
model. Explain this comment by reference to the
following items: long service leave, doubtful debts,
prepayments, warranty costs, interest costs,
development costs and rent received in advance.

4. In contrast to accounting profit, taxable profit is based

on rules that create economic incentives and
disincentives. Explain this comment by reference to the
following items: depreciation of non-current assets,
exempt income, fines and penalties, and entertainment
costs.

1
Question 5

You are provided with the following information of XYZ for

the year ended 30th June 2012:
 Cash sales $100000
 COGS 40000
 Amount received in advance for services to be
performed in August 2012 5000
 Rent expense for year ended 30th June 2012 10000
 Rent prepaid for 2 months to 31st August 2012
$1000
 Doubtful debts expenses
$1000
 Amount provided in 2012 for employees long
service leave entitlements $3000

Required:
Calculate taxable profit and accounting profit for the
year ending 30 June 2012.

Question 7

 JQY commences operations on 1 July 2016.

 On the same date, it purchases a machine at a cost of
$900,000.
o The machine is expected to have a useful life of four
years, with benefits being uniform throughout its
life. It will have no residual value at the end of four
years.

2
 o Hence, for accounting purposes the depreciation
expense would be $225,000 per year (900,000/4
years).
o For taxation purposes, IRD allows the company to
depreciate the asset over three years – that is
$300,000 per year.
o The profit before tax of the company for each of
the next four years (for years ending 30 June) is
$600,000, $700,000, $800,000 and $900,000
respectively.
o The tax rate is 30%.
You are required to calculate the temporary differences
caused by the depreciation and show the resulting
entries.

Questions 6

YTL Limited has the following assets in its balance sheet

as at 30 June 2011.
• Machinery: Acquired at a cost of $400000 on 1st
July 2009. It has a useful life for accounting
purposes of 5 years and no expected salvage
value. Its carrying value at 30th June 2011
therefore is $240000. For tax purpose it can be
depreciated at 25% per year.
• Interest receivable: Has recorded interest
receivable (interest earned but not yet
received) at $100000. The Tax authority will not
tax the interest until it is received.

3
 • Account Receivables: Has made sales on credit
terms amounting to $80000 and at the end of
the reporting period the $80000 is still to be
received. The IRD has already included the
$80000 in taxable Income.

Required:
Determine the respective tax bases of the above items
as at 30 June 2011.
Calculate the DTL or DTA