Tutorial 2

Tutorial 2
Chapter 6
Question 6.2

Current tax liability in four cases

The chief financial officer of Lost Weekend Ltd has asked you to calculate the taxable income and prepare the journal entry for the current tax liability in each of the following four cases.
Case 1
Case 2
Case 3
Case 4
Accounting profit (loss)
After debiting as expense:
Goodwill impairment loss*
Entertainment costs*
Donation to political party*
Depreciation expense – plant
Long-service leave expense
For tax purposes:
Tax depreciation for plant
Long-service leave paid
*These items are non-deductible for tax purposes.
Assume a tax rate of 30%.

$40 000

$20 000

$5 000

$(10 000 )

6 000
—
1 000
4 000
600

—
6 000
3 000
2 000
600

—
7 000
—
10 000
600

8 000
—
—
2 000
1 200

20 000
—

4 000
2 400

8 000
—

4 000
—

Case 1
Current Tax Worksheet
$
Profit before income tax
Add:
Goodwill impairment loss
Donation to political party
Depreciation expense
Long service leave expense

$
40 000
6 000
1 000
4 000
600

Deduct:
Long service leave paid
Tax depreciation
Taxable income
Current tax liability @ 30%

8 000

11 600
51 600
(8 000)
43 600
$13 080

The journal entry is:
Income Tax Expense
Current Tax Liability

Dr
Cr

13 080
13 080
Page 1 of 33

Case 2
Current Tax Worksheet
$
Profit before income tax
Add:
Entertainment costs
Donation to political party
Depreciation expense
Long service leave expense

$
20 000
6 000
3 000
2 000
600

Deduct:
Long service leave paid
Tax depreciation
Taxable income
Current tax liability @ 30%

11 600
31 600

4 000

(4 000)
27 600
$8 280

The journal entry is:
Income Tax Expense
Current Tax Liability

Dr
Cr

8 280
8 280

Case 3
Current Tax Worksheet
$
Profit before income tax
Add:
Entertainment costs
Depreciation expense
Long service leave expense

$
5 000
7 000
10 000
600

Deduct:
Long service leave paid
Tax depreciation
Taxable income
Current tax liability @ 30%

17 600
22 600

20 000

(20 000)
2 600
$ 780

The journal entry is:
Income Tax Expense
Current Tax Liability