Malarky Limited accrued $30 000 for employees' long service leave in the year ended 30 June 2013. This item will not be tax deductible until it is paid in approximately 10 years' time. If the company tax rate is 30% Malarky Limited must record the following tax effect as a balance date adjustment:

Question

Quizplus · Accepted Answer

The correct answer is A because the company has accrued an expense for long service leave that will not be tax deductible until it is paid in approximately 10 years' time. This means that the company will have to pay more tax in the future when the expense is actually paid. To account for this, the company must record a deferred tax asset of $9,000, which is the amount of tax that will be saved in the future when the expense is paid.

Malarky Limited Accrued $30 000 for Employees' Long Service Leave