Reference no: EM133188917
Question - MQE Ltd have the following transactions that have occurred during the 2021 financial year and are looking at the impacts these transactions may have on their deferred asset (DTA) and/or deferred tax liability (DTL) accounts. The opening balance of the DTA was $10,000 and the DTL $1,500. You have been asked to provide applicable journal entries (including narrations) for these transactions as well as provide a schedule of temporary differences and calculate any DTA's and/or DTL's and applicable income tax expense.
a. Transaction 1 - MQE Ltd purchased architecturally designed office furniture from Design Studios Pty Ltd in the amount of $240,000 on 1 July 2021. An amount of $90,000 was paid towards this purchase price by using cash reserves of the business. The remainder is being financed by the company's bank. It is estimated that this office furniture will have a useful life of 6 years with no salvage value. The useful life on office furniture from the Australian Taxation Office's perspective is estimated to be 5 years. An expert was asked to value the office furniture at the end of the financial year, as the company believes that the office furniture is now worth much more as the company they purchased from no longer makes these designs. A fair value of the office furniture came in at a valuation of $220,000.
b. Transaction 2 - MQE Ltd has a development costs account in their Balance sheet as at the 30 June 2022 of $50,000. These development costs were claimed as a deduction in the prior financial year.
c. Transaction 3 - The provision for annual leave is recorded in the accounts as at 31 May 2022 at $35,000. During the month of June an accrual for June's entitlement for annual leave totaled $7,000. Employees who took and were paid leave in June amounted to $8,000.
d. Transaction 4 - At 30 June 2021 the amount recorded in the Balance sheet for goodwill amounted to $500,000. The goodwill was impaired by 10% in 2022 and this needs to be recorded in the financial statements.
e. Transaction 5 - MQE Ltd rents out part of one of their warehouses to Burrows Pty Ltd. Burrows paid rent for the next quarter in advance in the amount of $30,000.
Required - Prepare the journal entries, please assume a 30% tax rate where applicable.