Fill in the blanks by dragging the correct options provided below. Owl Ltd has t

Question

Fill in the blanks by dragging the correct options provided below. Owl Ltd has taxable temporary differences of $40,000 at the year-end and a tax loss of $65,000. The tax rate is 30%. It is not probable that sufficient future taxable profits will be available against which the tax loss can be utilized. Owl Ltd, therefore, offsets the deferred tax liability of A , with B of the deferred tax asset. The entity, leaving a residual unused deferred tax asset ofD therefore, recognizes a Because it is not probable that there will be sufficient future taxable profits, recognized. Answer A Answer B Answer C Answer D Answer E $0 $0 deferred tax amount of $nil $0 no deferred tax $12,000 $12,000 I deferred tax asset of $7,500 $7,500 a net deferred tax asset of $7,500 $19,500 $19,500 deferred tax asset of $19,500 $12,000 a net deferred tax asset of $19,500 $25,000 $25,000 deferred tax liability of $12,000 $19,500 a net deferred tax liability of $12,000 Submit

Explanation / Answer

Owl Ltd has taxable temporary differences of $40,000 at the year-end and a tax loss of $65,000. The tax rate is 30%. It is not probable that sufficient future taxable profits will be available against which the tax loss can be utilized.

Owl Ltd, therefore, offsets the deferred tax liability of $12,000 with $19,500 of the deferred tax asset. The entity, therefore, recognizes a deferred tax amount of $nil, leaving a residual unused deferred tax asset of $7,500 because it is not probable that there will be sufficient future taxable profits, no deferred tax is recognized.

Taxable temporary difference = 40,000 x 30% => 12000 is Deferred tax liability

Tax loss of $65,000 => 65000 x 30% = 19500 is deferred tax assets.

Deferred tax assets is recognized to the extent its probable that sufficient future taxable profits will be available. Since its not probable that future profits will be available $12,000 DTL is offset with $19,5000 DTA and $7500 DTA is unrecognized.

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