Harvey Ltd commences operations on 1 July 2018 and presents its first statement of profit and loss and other comprehensive income for the year ending 30 June 2019 and first statement of financial position as at 30 June 2019. The statements are prepared before considering taxation. Harvey Ltd Statement of Profit and Loss and Other Comprehensive Income for the year ending 30 June 2019 $ $ Gross Profit 122 640 Less Expenses Incurred Administration 13 440 Salaries 33 600 Long Service Leave 3 360 Warranty 5 040 Depreciation Expense - Plant 13 440 Insurance 3 360 72 240 Accounting Profit Before Tax 50 400 Harvey Ltd Assets and Liabilities as disclosed in the Statement of Financial Position as at 30 June 2015 Assets $ Cash 2 360 Accounts Receivable 17 800 Inventory 16 800 Prepaid Insurance 1 680 Equipment Cost 67 200 Less Accumulated Depreciation 13 440 53 760 TOTAL ASSETS 92 400 Liabilities Accounts Payable 6 720 Salaries Payable 2 520 Accrued Administration Expenses 4 200 Provision for Long Service Leave 1 000 Provision for Warranty Expenses 3 360 Loan Payable 31 600 TOTAL LIABILITIES 49 400 NET ASSETS 43 000 continued next page

QUESTION (cont.) Additional Information Long service leave expense was owing as at year end with actual payments amounting to $2 360 (leaving an accrued balance of $1 000). Salaries expense was owing as at year end with actual payments amounting to a total of $31 080 (leaving an accrued balance of $2 520). Warranty expenses were accrued and as at year end. Actual payments amounting to $1 680 had been paid (leaving an accrued balance of $3 360). Administration expenses were owing at year end. Actual payments during the year amounted to $9 240 (leaving an accrued balance of $4 200). Insurance was initially prepaid to the amount of $5 040. At year end, the unused component of the prepaid insurance amounted to $1 680. Deductions allowed for taxation purposes are available only when expenses have been paid and not as they are accrued. Amounts received from sales (including those on credit terms) are taxed at the time the sale is made. The equipment is depreciated over five years for accounting purposes but over four years for taxation purposes. The tax rate is 30%. Required (i) Calculate the taxable income for the year ending 30 June 2019 showing all calculations. (ii) Prepare the relevant journal entry to account for current tax consequences for the year ending 30 June 2019 (show workings). (iii) Using the appropriate formulas, for each of the following assets and liabilities: 1. equipment 2. provision for long service leave 3. prepaid insurance (a) calculate the tax base (b) prepare the journal entry to account for any future tax consequences (c) explain the rationale as to why the temporary difference is treated as either a deferred tax asset or deferred tax liability