Shopping Malls Ltd has some land it purchased several years ago for $300,000. It has revalued the land this period to $480,000 and management intends to sell it in the near future. When the land was acquired the index for capital gains tax was 110 and at reporting date it is 132. The tax rate is 30 per cent. What is the entry to record the tax implications of the revaluation?
E) None of the given answers.

Question

Quizplus · Accepted Answer

The tax implications of the revaluation of the land would result in a taxable capital gain. The gain is calculated as follows: 
Revalued amount - original cost x (current index/original index)
= $480,000 - $300,000 x (132/110) = $264,000
The taxable capital gain is 30% of $264,000 = $79,200. 
Therefore, the entry to record the tax implications of the revaluation is:
Debit: Tax expense $79,200
Credit: Provision for taxation $79,200

Shopping Malls Ltd Has Some Land It Purchased Several Years