Accounting for income tax

Jackson Storm Ltd commenced business on 1 July 2017, with share capital of $300,000. On 30 June 2018, the company presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position. The statements are prepared before considering taxation. The following information is available:

Statement of Profit or Loss and Other Comprehensive Income (Extract) for the year ended 30 June 2018

$ $ Revenue

2 150 000 Government grant (exempt from income tax)

50 000 Expenses

Cost of sales 925 000

Advertising 59 000

Annual leave 25 000

Depreciation equipment 70 000

Depreciation motor vehicles 30 000

Doubtful debts expense 34 000

Entertainment (not tax deductible) 4 500

Insurance 18 000

Rent 78 000

Salaries 335 000

Warranty expenses 18 500

Other expenses 47 200 1 644 200 Accounting profit before tax

555 800

Statement of Financial Position (Extract) as at 30 June 2018

$ $ Assets

Cash

40 000 Inventory

162 900 Accounts receivable 250 000

Less: allowance for doubtful debts (32 000) 218 000 Prepaid insurance

7 000 Equipment cost 700 000

Less: accumulated depreciation (70 000) 630 000 Motor vehicles cost 120 000

Less: accumulated depreciation (30 000) 90 000 Total assets

1 147 900

Liabilities

Accounts payable

54 600 Loan

200 000 Provision for annual leave

21 000 Provision for warranties

16 500 Total liabilities

292 100 Net assets

855 800

Equity

Share capital

300 000 Retained earnings

555 800

855 800

Additional information:

The company purchased equipment at a cost of $700,000 on 1 July 2017. The equipment is depreciated over ten years for accounting purposes, and seven years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil). The company purchased motor vehicles at a cost of $120,000 on 1 July 2017. The motor vehicles are depreciated over four years for accounting purposes, and six years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil). Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued. Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off. The tax rate is 30%. Required:

i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Jackson Storm Ltd as at 30 June 2018, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.

ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.