Casper Ltd incurred a loss of $500 000 for tax purposes in 2014.This was due to one-off circumstances and it is expected that Casper will make profits again in 2015 and subsequent years.There are no temporary differences in either year.In 2015 Casper makes a profit of $700 000.The tax rate is 30%.What are the journal entries for 2014 and 2015?

Question

Quizplus · Accepted Answer

In 2014, the journal entry to record the tax loss would be:
Income tax expense 150,000
    Deferred tax asset   150,000
(To recognize the deferred tax asset resulting from the tax loss)

In 2015, the journal entry to record the tax expense would be:
Income tax expense 210,000
    Deferred tax asset   150,000
    Income tax payable 60,000
(To recognize the income tax expense for the current year and to adjust the deferred tax asset for the change in tax rate)

Casper Ltd Incurred a Loss of $500 000 for Tax