Omega Limited has an accounting profit before tax of $400 000. All of the following items have been included in the accounting profit: depreciation of plant $70 000 (tax deductible depreciation is $50 000) ; entertainment expenses $10 000 (non-deductible for tax purposes) ; Long service leave expense provided $12 000 (no employee took long service leave during the year) . The tax rate is 30%. The amount of current tax liability is:

A) $147 600
B) $132 600
C) $107 400
D) $120 000

Question

Alessandro Balsamo · Accepted Answer

Final Answer : B, Explanation :  To calculate the current tax liability, we need to adjust the accounting profit before tax for tax-deductible and non-deductible expenses. Therefore, we start with accounting profit before tax of $400,000 and make the following adjustments:Tax-deductible depreciation: $70,000 - $50,000 = $20,000Non-deductible entertainment expenses: $10,000 x 30% = $3,000Long service leave expense: $12,000 (no adjustment needed as it has no tax implications)Adjusted taxable income = $400,000 - $20,000 - $3,000 = $377,000Current tax liability = $377,000 x 30% = $113,100Therefore, the best choice is B as it is closest to the calculated current tax liability.

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