Sydney Limited accrued $20 000 for employees' long service leave in the year ended 30 June 2015. This item will not be tax deductible until it is paid in approximately 10 years' time. If the company tax rate is 30%, Sydney Limited must record which of the following tax effects as a balance date adjustment?

Question

Quizplus · Accepted Answer

The accrued long service leave creates a deductible temporary difference, leading to a deferred tax asset. The tax effect is $20,000 x 30% = $6,000, so the entry is Dr Deferred tax asset $6,000.

Sydney Limited Accrued $20 000 for Employees' Long Service Leave