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A company had no deferred tax asset/liability related to sick leave provision at the beginning of the year ended 31 December 20X1, and made no sick leave payment during the year. It reported a provision for sick leave of $20,000 on the statement of financial position as at 31 December 20X1. The tax authority allows a deduction only when sick leave is paid. The company made a sick leave payment of $18,000 during the year ended 31 December 20X2. The tax rate is 28%.
Required
Question 1: Calculate the deferred tax asset/liability arising from the sick leave provision as at 31 December 20X1. Show all your workings.
Question 2: Briefly explain why the figure you calculated in a) is a deferred tax asset or deferred tax liability.
Question 3: Give a journal entry to record the deferred tax impact of the sick leave provision at 31 December 20X1. Provide a one-sentence explanation for the journal.
Question 4: Give a journal to record the deferred tax impact of the sick leave payment during 20X2. Provide a one-sentence explanation for the journal.
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