Genitive Ltd is a service company which commenced operations on the 1st of October 2018. One year after the commencement of its operations (30th September 2019) the entity presented its first Statement of Comprehensive Income and the Statement of Financial Position. The Financial Statements are prepared before considering taxation. The following information is available: Statement of Comprehensive Income for the year ended 30 September 2019 (Extract) Gross profit Other income: rent income 3,300,000 60,000 Less expenses: Administration expenses Wages and salaries Long service leave expenses Doubtful debts Insurance expense Sales Commission Depreciation expense Profit before tax 157,600 704,000 128,000 33,000 63,400 98.500 124.000 1,308,500 $2,051,500 Statement of Financial Position as at 30th September 2019 (Extract) Current assets: Cash Inventory Account receivable - net Prepaid Insurance 65,000 335,000 235,000 32,700 667,700 Current Liabilities: Account payable Prepaid Rent Income Net working capital 334,000 28,500 362,500 305,200 Non-current asset: Plant and Machinery - cost Less accumulated depreciation Marketable Securities - fair value Land at cost 1.240,000 124,000 1,116,000 120,000 950,000 2,186,000 Non-current liabilities: Loan payable Provision for long service leave Net Assets 563,500 58,600 622,100 1,869,100 Additional Information 1. Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. 2. All administration, salaries, wages and commission expenses incurred have been paid as at 30.09.2019. 3. An amount of $69,400 long service leave expense has been paid at year end. Deductions for tax purposes are only available when the amounts are paid and not when provided. 4. During the financial year ended 30th September 2019, Genitive Ltd received rental revenue of 38,500 which relates to the following financial year. The related revenue is taxable by the Australian Taxation Office when the amount is received 5. There were no bad debts writing off during the financial year. Only bad debts are allowed as deductibles for tax purposes. 6. Insurance expense charged for the period represents the portion of the total prepaid amount which had been used during the year. $32,700 of the prepaid amounts has not been used as at year end. Insurance expenses are deductible when paid. 7. The plant and machinery are depreciated over ten (10) years for accounting purposes while its useful life is estimated to be eight (8) years for tax purposes. 8. Land had an initial cost price of $500,000 before it was revalued to its fair value at end year. 9. The applicable tax rate for Genitive Ltd is 28.5% Required: a) Prepare a reconciliation statement to determine taxable income. b) Complete the Deferred Taxation Worksheet provided in the next page. c) Prepare the appropriate journal entries to adjust the deferred tax accounts and recognise current tax payable at 30th September 2019. Genitive Ltd Deferred Taxation Worksheet - 30th September 2019 Tax base Statement of financial position Deductible temporary differences Taxable temporary differences Income tax expense Revaluation Surplus Current tax payable Assets Cash 65,000 Inventory 335,000 Accounts receivable 235,000 Prepaid insurance 32,700 Plant-net 1,116,000 Marketable Securities 120,000 Land 950,000 2,853,700 Liabilities Account payable 334,000 Loan payable 563,500 Provision for long service 58,600 leave Prepaid Rent Income 28,500 984,600 Net asset 1,869,100 Temporary differences at period end less Prior period amounts Movement for the period Tax effected at 30% Tax on taxable income, Income tax adjustments Genitive Ltd is a service company which commenced operations on the 1st of October 2018. One year after the commencement of its operations (30th September 2019) the entity presented its first Statement of Comprehensive Income and the Statement of Financial Position. The Financial Statements are prepared before considering taxation. The following information is available: Statement of Comprehensive Income for the year ended 30 September 2019 (Extract) Gross profit Other income: rent income 3,300,000 60,000 Less expenses: Administration expenses Wages and salaries Long service leave expenses Doubtful debts Insurance expense Sales Commission Depreciation expense Profit before tax 157,600 704,000 128,000 33,000 63,400 98.500 124.000 1,308,500 $2,051,500 Statement of Financial Position as at 30th September 2019 (Extract) Current assets: Cash Inventory Account receivable - net Prepaid Insurance 65,000 335,000 235,000 32,700 667,700 Current Liabilities: Account payable Prepaid Rent Income Net working capital 334,000 28,500 362,500 305,200 Non-current asset: Plant and Machinery - cost Less accumulated depreciation Marketable Securities - fair value Land at cost 1.240,000 124,000 1,116,000 120,000 950,000 2,186,000 Non-current liabilities: Loan payable Provision for long service leave Net Assets 563,500 58,600 622,100 1,869,100 Additional Information 1. Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. 2. All administration, salaries, wages and commission expenses incurred have been paid as at 30.09.2019. 3. An amount of $69,400 long service leave expense has been paid at year end. Deductions for tax purposes are only available when the amounts are paid and not when provided. 4. During the financial year ended 30th September 2019, Genitive Ltd received rental revenue of 38,500 which relates to the following financial year. The related revenue is taxable by the Australian Taxation Office when the amount is received 5. There were no bad debts writing off during the financial year. Only bad debts are allowed as deductibles for tax purposes. 6. Insurance expense charged for the period represents the portion of the total prepaid amount which had been used during the year. $32,700 of the prepaid amounts has not been used as at year end. Insurance expenses are deductible when paid. 7. The plant and machinery are depreciated over ten (10) years for accounting purposes while its useful life is estimated to be eight (8) years for tax purposes. 8. Land had an initial cost price of $500,000 before it was revalued to its fair value at end year. 9. The applicable tax rate for Genitive Ltd is 28.5% Required: a) Prepare a reconciliation statement to determine taxable income. b) Complete the Deferred Taxation Worksheet provided in the next page. c) Prepare the appropriate journal entries to adjust the deferred tax accounts and recognise current tax payable at 30th September 2019. Genitive Ltd Deferred Taxation Worksheet - 30th September 2019 Tax base Statement of financial position Deductible temporary differences Taxable temporary differences Income tax expense Revaluation Surplus Current tax payable Assets Cash 65,000 Inventory 335,000 Accounts receivable 235,000 Prepaid insurance 32,700 Plant-net 1,116,000 Marketable Securities 120,000 Land 950,000 2,853,700 Liabilities Account payable 334,000 Loan payable 563,500 Provision for long service 58,600 leave Prepaid Rent Income 28,500 984,600 Net asset 1,869,100 Temporary differences at period end less Prior period amounts Movement for the period Tax effected at 30% Tax on taxable income, Income tax adjustments