QUESTION 2 (10 + 5 = 15 marks)
The records of Cats Ltd as 30 at 30 June 2014 to 30 June 2016 revealed the following: A deferred tax liability of $45 000 relating to taxable temporary difference of $150 000. The temporary difference is related to account receivable that was recognized in the measurement of accounting profit in the year ended 30 June 2014.
It was expected that the cash will be collected from account receivable in future reporting periods, as follows: 2015 $60 000 2016 $90 000 A deductible temporary difference of $30 000 relating to provision for long service leave, which was expected to be paid in the future periods as follows: 2015 $10 000 2016 $ 20 000 During the financial year ending 30 June 2014, Cats Ltd received a fine of $25 000 from a regulatory body for violation of a particular law. The fine was paid in 30 June 2014 and it was a non-deductible expense. On 1 July 2013, Cats Ltd purchased a stadium at a cost of $80 000. The stadium was depreciated at 20% on straight line basis for accounting purposes and 25% per year for tax purposes. The building was expected to be recovered through use. At 1 July 2015 the stadium was revalued to $90 000 and Cats Ltd estimated that the remaining useful life of the stadium was 5 years from the date of revaluation.
The revaluations did not affect the tax base of the stadium. Cats Ltd had recognised goodwill of $15 000 in the statement of financial position. Goodwill was not amortised and would only be expensed if there is any impairment. Accounting profit was as follows: 2014 $112 500 2015 $142 500 2016 $165 000 There were no other transactions in 2014, 2015, 2016. The tax rate was 30%.
Required: I. Prepare a deferred tax table for years ending 30 June 2014, 2015 and 2016 by creating column for carrying amount, tax base, taxable temporary difference and deductible temporary difference. (10 marks) II. How would the answer for the year ended 30 June 2016 differ if the tax rate changed from 30% to 28% in 2016? Justify you answer with reference to AASB 112 “Income taxes”. (5 marks)
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