Reference no: EM133031721
Question - For the reporting period ending 31 December 2023, Spider Limited had a profit before tax of $361 200. In arriving at this figure the following items were correctly accounted for.
An item of plant purchased on 1 January 2021 for a cost of $820 000 is shown on the statement of financial position. For accounting purposes the item of plant has a useful life of five years and no expected residual value. For taxation purposes the Inland Revenue Department permits the plant to be depreciated on the straight line basis over four years.
On 31 December 2022 (after depreciation for the year had been charged), the item of plant (considered above) was revalued to $800 000. At revaluation, the plant was re-estimated as having a useful life of a further eight years from the date of revaluation.
No items of property, plant and equipment have been disposed of during the year.
Spider Limited made a donation of $30 000 to Project Johna. This donation is not permitted as a deduction for taxation purposes.
Unearned sales revenue of $240 000 had been received in advance for the 2024 reporting period. This amount is taxable in the hands of Spider Limited in the year of receipt.
Goods worth $840 000 had been sold on credit. At reporting date this amount is still to be received and has been included in taxable income.
An allowance for doubtful debts of 5 per cent of debtors outstanding at reporting date was made by Spider Limited. Only bad debts written off will be permitted as a deduction for taxation purposes. The allowance for doubtful debts for 2022 was $55,000.
Accrued wages amount to $220 000. The amount of the accrual will only be deductible for tax purposes when paid.
The tax rate is thirty per cent. Spider Limited uses tax effect accounting. No information other than that which can be determined from the above information is relevant.
Required -
1. Calculate the tax payable for the reporting period ending 31 December 2023.
2. Using a worksheet prepare the journal entries and narrations necessary to account for taxation for the reporting period ending 31 December 2023.
3. Calculate the balances in the deferred tax ledger accounts at 31 December 2023 and 31 December 2022. Clearly identify the deferred tax assets and deferred tax liabilities in each year.