On 1 July 2017, Koala Ltd acquired a depreciable asset at a cost of $500 000. Th
ID: 2542922 • Letter: O
Question
On 1 July 2017, Koala Ltd acquired a depreciable asset at a cost of $500 000. The asset is to be depreciated for accounting purposes over a useful life of four years using the straight-line method and a zero residual value. For tax purposes, depreciation is deductible at the rate of 40% per annum on the reducing balance. For the year ended 30 June 2018, taxable income of Koala Ltd was $250 000.
On 1 July 2018, Koala Ltd revalued the asset to a carrying amount of $420 000. For accounting purposes, depreciation will now be calculated on a three-year remaining useful life and a zero residual value. For the year ended 30 June 2019, taxable income of Koala Ltd was $320 000.
On 1 July 2019, Koala Ltd disposed of the asset for $125 000 cash.
The tax rate is 30% throughout this period.
Required
Determine the carrying amount, tax base and any related deferred tax in relation to this asset as at 30 June 2018 and 30 June 2019. Show all workings.
Show the general journal entries to record current and deferred income tax for the reporting periods ended 30 June 2018 and 30 June 2019.
Show the general journal entries (including any deferred tax consequences) to revalue the asset on 1 July 2018 and dispose of it on 1 July 2019.
Explanation / Answer
Answer to Q1 Calculation of carring amount of assets , current tax and deffered tax Carrying amounts Calcualtion of tax base A Asset value as on 1st july 2017 500000 Asset value as on 1st July 2017 500000 Depreciation for year ending june 2018 125000 (A/4) Depreciation for year ending june 2018 as per tax 200000 (500000*40/100) B Carrying amount as on 30th june 2018 375000 (A-D) Tax base for year end june 2018 60000 (200000*30/100) C Revaluation of asset as on 1st july 2018 420000 Carrying amount as 1st july 2018 300000 (500000-200000) D Depreciation for year ending June 2019 140000 (C/3) Depreciation for year ending june 2019 120000 (300000*40/100) E Carrying amount for year ending june 2019 280000 (C-D) Carrying amount as on June 2019 36000 (120000*30/100) Calcualtion of deferred Tax year end june 2018 year end june 2019 A Depreciation as per accounts 125000 140000 B Depreciation as per Tax 200000 120000 C Timing difference (A-B) (75000) 20000 D Defferred tax asset / (Liablity)(C*30/100) (22500) 6000 E Net deffered tax asset /(Liablity) (16500) (22500-6000) Answer to Q2 Journal entries Current tax calculation year ending june 2018 year end june 2018 year end june 2019 A Taxable income given in question 250000 320000 1 Current Tax account __________ dr 75000 B Income tax @ 30% 75000 96000 (A*30/100) To Cash / Bank account 75000 (Being current tax paid) 2 Profit and loss account ____________ dr 22500 To Deferred tax liablity account 22500 (Being deferred tax liablity created for year ended june 2018) year ending june 2019 Current Tax account __________ dr 96000 To Cash / Bank account 96000 (Being current tax paid) Deferred tax liablity ____________ dr 6000 To Profit and Loss account 6000 (Being deferred tax liablity created for year ended june 2019) Answer to Q3 Journal entries for revaluation of assets value as on 30th June 2018 375000 Asset revalued at 420000 Asset upward valued by 45000 (420000-375000) 1 Asset account _____________ Dr 45000 To Revaluation reserve account 45000 ( being asset revalued by 45000) Carrying amount as on june 2019 280000 (calculated in Q1) Asset dispose off as on 1st july 2019 125000 Loss on sale of assets 155000 2 Cash / Bank account_____________Dr 125000 Profit and loss account __________Dr 155000 To Assets account 280000 (Being asset sold and loss on sale of asset is booked)
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