Reference no: EM132813256

Question - The following information was extracted from the records of Elite Ltd as at 30 June 2020.

Asset (liability) Carrying amount ($) Tax base ($)

Machinery 720,000 600,000

Accounts receivable 262,500 322,500

Prepaid rent 45,000 0

Provision for warranty (86,000) 0

Insurance payable (15,000) 0

Deposit received in advance (54,000) 0

Depreciation rate for machinery is 20% per year. For tax purpose, the depreciation rate is 25%. An allowance for doubtful debts of $60,000 has been raised against accounts receivable for accounting purposes, but such debts are deductible only when written off as uncollectible. Deposits are taxable when received, and warranty costs are deductible when paid. Deferred tax assets and deferred tax liabilities as at 30 June 2019 were $35,000 and $31,250 respectively. The tax rate is 30%.

Requirement -

a) Calculate Deferred Tax Assets and Deferred Tax Liabilities as at 30 June 2020. Show your calculations by creating columns for carrying amount, tax base, assessable temporary difference, and deductible temporary difference in your worksheet.

b) Prepare the relevant journal entries as at 30 June 2020.

c) Justify your classification of each difference as either deductible temporary difference or taxable temporary difference for:

i. Machinery, and

ii. Accounts receivable