Unit 4 _ Activities & Worked Examples_ FIN

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You are a Chartered Accountant working for SHN Limited and are responsible for preparing tax effect accounting journal entries in accordance with IAS 12. An extract from SHNs’ financial statements for the year ended 30 June 20X3, together with additional information, are shown below.

Additional Information:
1. The profit on sale of the investment is not assessable for tax purposes.
2. Accumulated depreciation at 30 June 20X2, for tax purposes, was $100,000. Tax depreciation for the year ended 30 June 20X3 is $50,000. There have been no disposals or additions.
3. All development expenditure incurred is capitalised by SHN. All development expenditure incurred is deducted in full for tax purposes in the year in which it is incurred, giving rise to a tax deduction equal to the costs incurred.
4. The $72,000 deferred tax asset (DTA) balance at 30 June 20X2 comprises:
• DTAs relating to temporary differences: $45,000.
• DTAs relating to carried forward tax losses: $27,000. This relates to $90,000 in tax losses that may be utilised in the year ended 30 June 20X3.
5. An additional $500,000 in share capital was issued on 1 July 20X2. Share issue costs of $20,000 were incurred and have been correctly debited against the share capital account. These costs are deductible for tax purposes, with $4,000 being deductible in the year ended 30 June 20X3, and the $16,000 costs being tax deductible in future years.
6. Employee entitlements are deductible for tax purposes when paid.
7. The entertainment expenses are not deductible for tax purposes.
8. A bad debt deduction is only allowed when previously brought to account as income and specifically written off as bad.
9. The accounting treatment of accounts or transactions is assumed to be the same as the taxation treatment, unless otherwise indicated.
10. Tax rate is 30%.

You are required to prepare the tax effect journal entries that should be included in the financial statements for SHN for the current income year.

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