Bambino Ltd recorded an accounting profit before income tax of $450,000 for the year ended 30 June 2020 that included the following Depreciation of plant equipment $80,000 Royalty revenue 45,000 Rent expense 35,000 Annual leave expense 30,000 Impairment of goodwill expense 20,000 Doubtful debts expense 10,000 Additional information No income tax deduction is allowed in relation to the impairment of goodwill expense Tax depreciation for the plant equipment for the year was $60,000 The plant equipment had cost $200,000 when purchased two years ago Royalties received in cash during the year amounted to $40,000 Cash payments of $25,000 for annual leave and $15,000 for rent were made during the year Total bad debts written off during the year amounted to $12,000 During the year ended 30 June 2019, Bambino Ltd received $13,000 cash which was recorded as revenue in advance This amount was assessable for tax during the year ended 30 June 2019 and was recognized as revenue during the year ended 30 June 2020 During the year ended 30 June 2020, Bambino Ltd received $5,000 cash which was recorded as revenue in advance This amount is assessable for tax during the year ended 30 June 2020 It is expected to be recognized as revenue during the year ended 30 June 2021 The company income tax rate is 30 A) Calculate the current tax of Bambino Ltd for the year ended 30 June 2020 and prepare the required tax journal entry B) What is the tax base of the plant equipment Calculate the temporary difference for the plant equipment and identify whether this is taxable or deductible C) Explain (1) why taxable profit is different from accounting profit and (2) why, with tax effect accounting, the amount of tax owed to the tax authority is different from the amount of income tax expense recorded in the income statement

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Posted on Sep 30, 2020

Bambino Ltd recorded an accounting profit before income tax of $450,000 for the year ended 30 June 2020 that included the following: Depreciation of plant

Bambino Ltd recorded an accounting profit before income tax of $450,000 for the year ended 30 June 2020 that included the following:

Depreciation of plant equipment $80,000

Royalty revenue 45,000

Rent expense 35,000

Annual leave expense 30,000

Impairment of goodwill expense 20,000

Doubtful debts expense 10,000

Additional information:

No income tax deduction is allowed in relation to the impairment of goodwill expense.
Tax depreciation for the plant equipment for the year was $60,000. The plant equipment had cost $200,000 when purchased two years ago.
Royalties received in cash during the year amounted to $40,000.
Cash payments of $25,000 for annual leave and $15,000 for rent were made during the year.
Total bad debts written off during the year amounted to $12,000.
During the year ended 30 June 2019, Bambino Ltd received $13,000 cash which was recorded as revenue in advance. This amount was assessable for tax during the year ended 30 June 2019 and was recognized as revenue during the year ended 30 June 2020.
During the year ended 30 June 2020, Bambino Ltd received $5,000 cash which was recorded as revenue in advance. This amount is assessable for tax during the year ended 30 June 2020. It is expected to be recognized as revenue during the year ended 30 June 2021.
The company income tax rate is 30%.

A) Calculate the current tax of Bambino Ltd for the year ended 30 June 2020 and prepare the required tax journal entry.

B) What is the tax base of the plant equipment? Calculate the temporary difference for the plant equipment and identify whether this is taxable or deductible.

C) Explain

(1) why taxable profit is different from accounting profit and

(2) why, with tax effect accounting, the amount of tax owed to the tax authority is different from the amount of income tax expense recorded in the income statement.