Question
Before considering question 2 and 3, the accounting profit and taxable income of Ivy Ltd for the financial year ended 30 June 2019 was $600,000.
Before considering question 2 and 3, the accounting profit and taxable income of Ivy Ltd for the financial year ended 30 June 2019 was $600,000.
a) Ivy Ltd acquired property, plant and equipment (PP&E) on 1 July 2018 for $1,000,000. It is depreciated at 20% per annum straight-line with no residual value for accounting purposes and 25% per annum straight-line with no residual value for tax purposes.
b) The balance of Accounts receivable on 30 June 2019 was $180,000. The allowance for doubtful debts had a credit balance of $17,000 on 1 July 2018. For the 2019 financial year, bad debts expense was $24,000; bad debts written-off and claimed for tax purposes were $21,000. The amount recognised in the accounts receivable is taxed at the moment of the sale being made.
c) Ivy Ltd incurred development costs of $10,000. These costs did not meet the conditions for capitalisation in AASB 138 and were recognised as expenses. For tax purposes, 125% of the development costs are an allowable deduction in the year the costs were incurred.
d) Actual payments of warranty expense of $5,000 were made during the year. The closing balance of Provision for warranty on 30 June 2019 was $15,000. Tax deductions for warranty are available only when the amounts are paid.
e) Ivy Ltd incurred a late lodgement penalty from the Australian Taxation Office of $8,000 on 15 June 2019. Ivy Ltd cannot claim a tax deduction on this penalty.
Required: Calculate the taxable income for the year 30 June 2019. Prepare the journal entry for current income tax expense. Show all calculations. [6 marks]
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