Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lowsales Ltd has the following extract from the statement of financial position as at 30 June 2021: $ Cash at bank 97,000 Accounts Receivable (net)

Lowsales Ltd has the following extract from the statement of financial position as at 30 June 2021:

$

Cash at bank 97,000

Accounts Receivable (net) 234,000

Prepaid Rent 4,000

Inventory 228,000

Equipment (net) 48,000

Total Assets 611,000

Accounts Payable 67,000

Revenue Receved in Advance 18,000

Bank Loan 100,000

Foreign Currency Loan Payable 32,000

Employee Benefits Liability 65,000

Total Liabilities 282,000

The following information is relevant for Lowsales Ltd:

  • Revenue received in advance is recognised in the statement of financial position of Lowsales Ltd and will be recognised in their statement of comprehensive income when the revenue is earned.
  • The employee benefits liability increases with additional employee expenses and decreases when the liability is paid.
  • For tax purposes, deductions can only be claimed for bad debts written off. As at 30 June 2021, the allowance for doubtful debts was $11,000 and the allowance had increased by $5,000. The revenue relating to the accounts receivable has already been taxed.
  • The equipment was originally purchased four years ago for $80,000. The equipment is being deducted for tax purposes over eight years and for accounting purposes over 10 years.
  • The foreign currency loan payable was originally drawn down at $33,000. The $1,000 gain included in the statement of comprehensive income is not included in the taxable profit until the loan is settled.
  • Prepaid rent has increased by $2,000 during the year. The additional outlay can be claimed as a tax deduction when paid.
  • The opening deferred tax asset balance is $16,200 and the opening deferred tax liability balance is $2,400. The taxable profit for the financial year ended 30 June 2021 is $331,000. Assume a tax rate of 30%.

Required:

  1. Calculate the relevant temporary differences and deferred taxes in a worksheet and show the movements between the deferred taxes.
  2. Prepare the journal entries to record the deferred tax assets, deferred tax liability, and the current income tax for the year ended 30 June 2021.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions