Question 1
The difference between Accounting Profit and Taxable Profit is that accounting profit
refers to the earnings calculated based on the accounting standards or GAAP (Generally
Accepted Accounting Principles), Taxable profit adjusts the accounting profit for tax
reporting that allows the organization to reduce their tax liability.
Question 2
Temporary difference- in accounting and tax profit arise when the period in which revenue
and expenses are recognized for accounting purposes is different from the period in which
such revenues and expenses are treated as taxable income and allowable deduction for tax
purposes.
Temporary differences can be of two types:
Taxable temporary differences: These differences result in future taxable income.
Deductible temporary differences: These differences result in future tax deductions.
Taxable temporary difference is the timing difference that creates tax liability which the
company needs to pay in the future. In other words, the taxable temporary difference creates
deferred tax liability.
Deductible temporary difference is the timing difference that creates tax asset which the
company can deduct in the future. In other words, deductible temporary difference creates
deferred tax asset.
Taxable temporary differences arise when:
The carrying amount of an asset is lower than its tax base or
The carrying amount of a liability is higher than its tax base.
Examples of situations when deductible temporary differences arise, and deferred tax asset is
recognised, are as follows:
a provision is recognised under IAS 37 which will be deducted from taxable income in
the future on a cash basis,
liabilities for long-term employee benefits are recognised under IAS 19 which will be
deducted from taxable income in the future on a cash basis,
impairment loss is recognised for assets other than goodwill, and it does not impact tax
base of related assets,
unrealised gains resulting from intragroup transactions are eliminated on consolidation.
Question 3
1. Identify all your taxable income
Taxable income, particularly for businesses and corporations, is often complex and layered.
Most companies have options regarding how they track and categorize their taxable income,
particularly in regards to depreciation on their profits. It's advisable to consult a professional
tax expert, like a CPA or tax attorney, to help identify all taxable income expenses for your
organization.
2. Find the sum of all the taxable income streams
Once you've identified all your separate streams of taxable income, and you've applied the
appropriate depreciation rates as recommended by a tax professional, you'll add all these
independent expenses together. The sum of all these expenses represents the total taxable
income that you can use to determine your overall income tax expense.
3. Determine the tax rate
In most cases, the tax rate applied to a company's taxable income differs from the standard
application. As with determining your individual taxable income expenses, it's advisable to
work with a tax professional to determine your company's tax rate.
4. Apply the income tax expense formula
Once you have your total taxable income figure and the appropriate tax rate percentage, you
can calculate your overall income tax expense. Input the appropriate numbers in this formula:
Taxable income x Tax rate = Income tax expense
For example, if your company had a total taxable income of $1 million and a tax rate of 20%,
your income tax expense would be $200,000.
5. List income tax expenses on the income statement
In addition to using the income tax expense formula to determine how much the company
owes in taxes, most businesses list this expense on their income statement to help understand
the organization's overall profitability.
Question 3
Question 4
Income taxes payable
On December 31, 20×1, Entity An estimated the income taxes expense for 20×1 as $260,000.
Prepare a journal entry to record this transaction.
Income taxes payable is recorded on the credit side.
Debit Credit
Income taxes expense 260,000
Income taxes payable 260,000
[Note]
1. Increase in income taxes expense (expense): debit
2. Increase in income taxes payable (liability): credit
Question 5
Answer is regarded as a provision.
IAS 19 Employee Benefits (amended 2011) outlines the accounting requirements for
employee benefits, including short-term benefits (e.g., wages and salaries, annual leave),
post-employment benefits such as retirement benefits, other long-term benefits (e.g., long
service leave) and termination benefits. The standard establishes the principle that the cost of
providing employee benefits should be recognised in the period in which the benefit is earned
by the employee, rather than when it is paid or payable, and outlines how each category of
employee benefits are measured, providing detailed guidance in particular about post-
employment benefits.
Why Do Deferred Tax Assets Occur?
Just save company to pay more taxes in the future because the company pay more tax for the
past current accounting period.
A balance sheet may reflect a deferred tax asset if a company has prepaid its taxes. It also
may occur simply because of a difference in the time that a company pays its taxes and the
time that the tax authority credits it. Or, it may indicate that the company overpaid its taxes.
In such cases, the company's books need to reflect taxes paid by the company or money due
to it.
Question 1
John
Exception → $400,000 - $30,080 = $369,920
$1 – 15,000 × 0.11 = $1,650 ($369,920 - $15,000 = $$354,920)
$15,000 - $30,000 × 0.23 = $3450 ($354,920 - $15,000 = $339,920)
$30,000 - $60,000 × 0.35 = $10,500 ($339,920 - $30,000 = $309,920)
$309,920 × 0.4 = $123,968
Total taxable = $139,568.00
Janny
Exception → $50,000 - $30,080 = $19,920.00
$1 - $15000 × 0.11 = $1,650
$4,920 × 0.23 = $1,131.60
Total tax liability = $2,781.60
Question 2
$20,000,000,000 × 0.30 = $6,000,000,000
Question 3
$40,000,000,000 × 0.35 = $14,000,000,000,000
$60,000,000,000 × 0.35 = $21,000,000,000,000
$35,000,000,000,000
Question 4
Required:
A. Calculate taxable profit and accounting profit for the year ending 30th June 2022.
i. Accounting profit
Sales---------------------------------------------------------------------$1,000,000
Less: COGS--------------------------------------------------------------$200,000
Gross profit---------------------------------------------------------------$800,000
Add: other revenue
Government grant--------------------------------------------------------$500,000
$1,300,000
Less: Expenses
Rent expense-------------------------------------------------------------$100,000
Fines and penalties-------------------------------------------------------$15,000
Doubtful debts expenses-------------------------------------------------$20,000
Long service leave entitlements-----------------------------------------$90,000
Entertainment--------------------------------------------------------------$10,000
Total expenses------------------------------------------------------------$235,000
Net profit-----------------------------------------------------------------$1,065,000
ii. Taxable profit
Sales----------------------------------------------------------------------------$1,000,000
Less: COGS--------------------------------------------------------------------$2000,000
Gross profit---------------------------------------------------------------------$800,000
Add: other revenue-------------------------------------------------------------$50,000
$850,000
Less: Expenses
Rent expense-------------------------------------------------------------------$100,000
Rent prepaid expense-----------------------------------------------------------$60,000
Total taxable expenses--------------------------------------------------------$160,000
Net taxable profit------------------------------------------------------------$690,000
B. Calculate the tax payable for year ending 30th June 2022.
Taxable profit $690,000 × 30% = $207,000 → current tax liability
Journal Entry
Dr Income tax expense $207,000
Cr Current tax liability $207,000
