Liabilities Q10

Q10: Explain how Ryman Healthcare has an Income tax expense of $6.3m (See Ryman Healthcare’s 2017 Annual Report – Consolidated income Statement, page 20) and yet it actually paid in cash no tax that year (see Ryman Healthcare’s 2017 Annual Report – Consolidated statement of cash flows, page 23). What would be the journal and ledger entries to record its Income tax expense?

A:

Ryman Healthcare had zero assessable corporate income tax in 2017. All of Ryman Healthcare’s Income tax expense of $6.3m is Deferred tax expense (See Ryman Healthcare’s 2017 Annual report footnote 4).

Ryman Healthcare’s Deferred tax expense of $6.3m is based on the effect of its activities during the past year on its expected taxable earnings (and thus tax to be paid) in future years.

The journal entries for this are:

DR Income tax expense             $6.3m

       CR Deferred tax liability                   $6.3m

(Deferred tax liability increased due to increased timing differences)

This is then posted to the ledger:

                                                         Deferred tax liability


                                                                            |  Opening balance                             $64.5m

                                                                            |  31/3/2017  Income tax expense     $6.3m

                                                                            |  Closing balance                               $71.3m

                                                           Income tax expense


  Opening balance                                   0    |  

   31/3/2017 Deferred tax liability $6.3m | 

   Closing balance                              $6.3m |  

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