Reference no: EM132538026

Intermediate Financial Accounting Question -

In 20x1, FFF Pte Ltd ("FFF") started its business operations of providing services to companies for various projects. In its first year of operations, FFF recorded an accounting profit before tax of $500,000. Also, the accountant of FFF note the following information:

(i) Revenues for 20x1 was $1,000,000. 80% of these have been collected while the remaining revenues will be collected in 20x2. Assume that the tax law taxed revenues based on cash collected for the sales.

(ii) A machine was acquired on 1 January 20x1 for $90,000. FFF's company policy was to depreciate the machine over five years on a straight-line basis. The residual value was expected to be zero. Assume that the tax law allowed capital allowance of the machine to be claimed over three years on a straight line basis.

(iii) There was an allowance for impairment of accounts receivables of $30,000 made during the year. Under the tax laws, impairment losses were deductible only upon actual write-off. During the year, accounts receivables written off amounted to $16,000.

(iv) Penalties for late filings of accounts was expensed and paid during the year amounting to $5,000. These are non-tax-deductible.

The tax rate was 20% and was revised to be 18% effective for basis periods beginning from 1 January 20x2 and beyond. The company was expected to have taxable income in future years. FFF adopts the Singapore FRSs and have December 31 year-ends. When presenting your answers, please round all answers to the nearest dollar.

Required -

(a) Prepare the tax computation for the year ended 31 December 20x1 based on the above information and prepare the necessary journal entries (journal narrative not required) to recognise the current tax receivable/payable for the year.

(b) Apply the balance sheet liability approach by determining the tax base and the taxable (deductible) temporary differences arising from the asset and liability accounts as at 31 December 20x1. Also determine the deferred tax asset/liability as at 31 December 20x1 and prepare the necessary journal entries (journal narrative not required) to recognise the deferred tax for the year.

(c) Draw up a numerical tax reconciliation (otherwise known as an analytical check) to reconcile the accounting profit to the tax expense.