ACC708

Advanced Accounting Practice

& Reporting I

LECTURE ONE
ACCOUNTING FOR INCOME TAX PART I

BACHELOR OF ACCOUNTING YEAR 4

SCHOOL OF BUSINESS AND MANAGEMENT
DEPARTMENT OF ACCOUNTING

Lecturer BETTY ATOA FATAI

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INTRODUCTION TO THE COURSE
The Prerequisite unit for ACC708 is ACC704 Framework for Accounting &
Reporting II.

Advanced Financial Accounting & Reporting covers advanced topics in

financial accounting and the course is offered in two parts.

Advanced Financial Accounting & Reporting I covers reporting issues in

insurance companies, banks and financial institutions, tax effect
accounting, business combinations and company liquidations.

 This course provides deeper and broader understanding of Tax effect

accounting and reporting of deferred tax, accounting and reporting in
insurance companies, banks and financial institutions and determination,
accounting for business combinations and accounting for company
liquidations.

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TEACHING AND LEARNING RESOURCES
Text book
Dagwell et al., Corporate Accounting in Australia, Pearson Higher
Education, AU, 2015.

Reference book
Leo et al., Company Accounting, John Wiley& Sons Australia Ltd.
Deegan, Australian Financial accounting, McGraw Hill Education.
Moodle postings from time to time

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UNIT CONTENT
1. Tax effect accounting
2. Accounting for insurance companies
3. Accounting for banks and financial
institutions
4. Accounting for business combinations
5. Accounting for company liquidations

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REVISION TIPS
Personal tax threshold
From January 2020, personal exemption threshold for individuals is 30,
o80. Which means that employees who earn $30, 080 will not be paying
taxes. However, employees who earn more than 30, 080 will be paying
taxes based on the tax brackets

$ 1- $15 000 11%

$15001-$30 000 $1650 + 23% of excess
$30 000 to $60 000 $ 5100 + 35% of excess
$60 000 and over $15600 + 40%

* Corporate tax rate is 30% and 35% respectively for Residents and non
residents.

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 TOPIC 1
TAX EFFECT ACCOUNTING

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 REVISION QUESTIONS

1.Jan earns $30,080 per annum. How much tax will she paid?

2. John earns 80 , 000 per annum. Calculate his fortnight tax deduction?

3. Tropical Aluminum Glass company Taxable income for year 2022 was $12
million. Calculate its corporate income tax expense.

4. A non resident Company taxable income and Accounting Income for year
2022 was $8 million and $ 10 million respectively. Calculate its Corporate income
tax payable?

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 TOPIC 1
TAX EFFECT ACCOUNTING
PART I

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 INTRODUCTION

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 INTRODUCTION

Accounting for income taxes -recognizes both the current tax

consequences of transactions and events and the future tax
consequences of the future recovery or settlement of the
carrying amount of an entity's assets and liabilities.

Current Tax
-Recognize liability for unsettled portion of tax expense.
-Recognize an asset to the extent amounts paid exceed
amounts due.
-Tax loss which can be used against future taxable income can
be recognized as an asset (deferred tax asset).
 The Nature of Income tax
Accounting profit is usually different from taxable profit, Because they are
determined by different principles and rules. the difference arise from a number of
common transactions and may be either temporary or permanent in nature.

Temporary difference- in accounting and tax profit arise when the period in
which revenue and expenses are recognized for accounting purposes is different
from the period in which such revenues and expenses are treated as taxable income
and allowable deduction for tax purposes.

Permanent difference- in accounting and tax profit arise when the treatment of a
transaction by taxation legislation and accounting standard is such that amount
recognized as part of accounting profit are never recognized as part of taxable
profit or vice versa.
- this includes income never subject to taxation and expenditure incurred by
an entity that will never be an allowable deduction. Where such difference exist,
taxable profit will never equal accounting profit.
 Some of the difference between
accounting rules and tax rules
item Generally accepted accounting rule Tax Rule
Many accurued expenses (for example, long
service leave, warranty costs) An expense when accured Recognised as a tax deduction when paid
Many prepaid expense ( for example, Prepaid Intially as asset -expensed when economic
rent) benefits used Typically a tax deduction when paid
Revenue received in advance (for example, rental Treated as a liability -recognised as revenue when
revenue) earned Typically taxed when received
Not a tax deduction in current or subsequent
Entertainment and goodwill impairment Treated as an expense periods
Treated as a tax deduction when debtor is actually
Doubtful debts Treated as an expense when recognised written off in subsequent period
Development expenditure
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Often capitalised and subsequently amortised Typically a tax deduction when paid for 14
EXAMPLE
You are provided with the following information of Urban Rush enterprises
for the year ended 30th June 2022:
Cash sales $100 000
COGS 40 000
Amount received in advance for services to be performed in August 2012
5000
Rent expense for year ended 30th June 2022 10 000
Rent prepaid for 2 months to 31st August 2022 $1000
Doubtful debts expenses $1000
Amount provided in 2022 for employees long service leave entitlements
$3000
Required:
A. Calculate taxable profit and accounting profit for the year ending 30 June
2022.
B. Calculate the tax payable for year ending 30th June 2022.

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Announcement

Your Unit descriptor, lecture 1 and tutorial 1 will be posted

sometimes this week.
Our tutorial sessions and normal classes will kick start by this
week 4.

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