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Wood Limited commenced trading on 1 January 20X1. It has a profit before tax of C250,000 for the year ended 31 December 20X1. The following information was correctly accounted for when calculating this figure:

- An amount of C24,000 received in advance for goods and services to be provided in 20X2 (taxable in the current year).
- Interest income of C7,000 is receivable (taxable in the current year).
- Telephone payment of C5,000 is due for 20X1 but has not yet been paid (deductible for tax purposes in the current year).
- The rent for January 20X2 of C10,000 has been paid in advance (deductible for tax purposes in the current year).
- Dividend income of C12,000 was earned during 20X1 (not taxable).
- A donation of C8,000 was paid during 20X1 (not deductible for tax purposes).
- Depreciation of C40,000 was expensed during the year. The tax authority has calculated wear and tear to be C25,000. This was the only movement in property, plant, and equipment during the year.

There are no components of other comprehensive income. The applicable tax rate is 30% on taxable profits. There are no other differences between accounting profit and taxable profit other than those mentioned above.

Required:

a) Provide the current tax and deferred tax journals for the year ended 31 December 20X1.

b) Show how taxation is disclosed in the statement of comprehensive income and income tax expense note for the year ended 31 December 20X1 in accordance with International Financial Reporting Standards.

Answer :

Final answer:

The calculation of current and deferred tax for a company, Wood Limited, involves adjustment of the profit-before-tax value with regard to relevant revenues and expenses. The disclosed taxation should follow International Financial Reporting Standards.

Explanation:

The question asks for the current and deferred tax journals, as well as the disclosure of taxation in accordance with International Financial Reporting Standards (IFRS) for a company named Wood Limited.

Firstly, we need to calculate the company's taxable profit. According to the provided information, we should take the profit before tax of C250000 and modify it according to the relevant income items and expenses. Some items may lead to the increase of the taxable profit (e.g., the C24 000 received in advance and the C7000 of interest income), while others can decrease it (e.g., the prepaid rent and the unpaid telephone costs). After these adjustments, we can apply the tax rate (30%) to find the current tax.

The deferred tax will be influenced by timing differences, such as the discrepancy between the depreciation expense and the tax authority's calculated wear and tear. For the disclosure part, the taxation should be presented in the statement of comprehensive income and also detailed within notes that mention the income tax expense. Furthermore, it should comply with IFRS rules.

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