MBS678 Corporate Accounting

This assignment is due for submission in the week beginning Monday 17 June 2024 (Session 7). Internal students are required to hand in a hard copy of their assignment during their normal class time during Session 7. External students are required to upload their assignment to the LMS portal set up under session 7 by Wednesday 19 June at 5pm. Late submissions will not be accepted and no extensions will be granted.

Students are reminded that assignments are to be their own work. Any evidence of collusion or plagiarism will be treated as academic misconduct and appropriate action will be taken. The assignment will be marked on its merit rather than on the correctness of the solution. Students are encouraged to do their best and to use the assignment as a learning tool for the online quizzes and final exam.

Please find the instructions for the assignment over the page. Students can either do the first assignment individually or they can do it with a partner from their face-to-face class. Students are not permitted to partner with a student from another class. Only one submission is required for students that do the assignment as a pair. External students can partner with another external student or do the assignment on their own. Studentsare required to submit the assignment as a word file using size 12, Times New Roman font. The marking guide for the assignment will follow the required calculation and written questions. Please follow the requirements carefully and speak to your tutor if you have any questions about the assignment.

Generative AI

While students are permitted to use generative AI to enhance their understanding of corporate accounting concepts and principles, if generative AI is used in assignments, it must be properly referenced. Any evidence of the use of generative AI in assignments without referencing will be treated as academic misconduct.

Assignment One Question

At 30 June 2023 Maximum Ltd provided the following information from its balance sheet about its assets and liabilities

Assets	($000)
Computers at cost	300
Accumulated depreciation	(60)
Accounts receivable	100
Allowance for doubtful debts	(10)
Liabilities
Provision for warranty costs	30
Provision for employee benefits (LSL)	20

Maximum Ltd depreciates computers over five years in its accounting records but over three years for tax purposes. The straight-line method is used. No amounts were paid for long service leave or warranty claims during the year.

The following information is available for the following year, the year ending 30 June 2024.

Statement of profit or loss for Maximum Ltd for the year ending 30 June 2024 $000
Sales	4 000
Cost of goods sold	(1 800)
Depreciation expense	(60)
Warranty expense	(90)
Bad and doubtful debts expense	(25)
Other expenses	(1 375)
Profit before tax	650

During the year, Maximum Ltd wrote off bad debts amounting to $15 000. Warranty costs of $70 000 were paid during the year. No amounts were paid for long service leave during the year. The following information is extracted from the statement of financial position at 30 June 2024:

Assets	$000
Accounts receivable	120
Allowance for doubtful debts	(20)
Liabilities
Provision for warranty costs	50
Provision for employee benefits (LSL)	30

There was no acquisition of plant and equipment during the year.

The tax rate as at 30 June 2023 and 30 June 2024 was 30 per cent.

Required - Calculation Questions

1. Calculate the amount of each of Maximum Ltd's temporary differences, if any, at 30 June 2023, and state whether it is deductible or taxable. Present your answer using the following table format (show workings where relevant):

Account

Carrying amount

Tax base

Temporary Difference

1. What is the balance of the deferred tax liability and deferred tax asset as at 30 June 2023?
2. Complete a worksheet showing the deferred tax balances for the year ended 30 June 2024. Hint: the opening balances calculated for the previous year have to be deducted.
3. Complete the relevant general journal entries to record current tax and deferred tax for the year ending 30 June 2024.

Written Questions - Independent of parts 1-4 above.

1. In your own words, explain the meaning of 'the tax base of an asset/liability' and how this differs from the asset's/liability's carrying amount.
2. Calculate the carrying amount and the tax base of the following assets and liabilities at 30 June 2024 using the following table (for each part, briefly explain, either showing your workings or providing a written explanation, how you determined the tax base):

Account

Carrying amount

Taxable amount

Deductible amount

Tax base

1. In July 2023, the company capitalised $750 000 incurred in designing improved hearing aids. Expenditure on research and development is deductible in full for tax purposes when paid but amortised over five years for accounting purposes.
2. Borrowing costs associated with financing land held for resale have been capitalised. The borrowing costs paid in June 2024 amounted to $50 000 and will be expensed for accounting purposes when the land is sold.
3. The closing balance of the Allowance for doubtful debts at 1 July 2024 was $7 500, after accruing a further $4 500 and writing off $6 000 as bad debts during the year ended 30 June 2024. Accounts receivable at 30 June 2023 was $213 000 and the balance at 30 June 2024 was $250 000. Prepare the Allowance for doubtful debts T account.
4. The opening balance of the prepaid insurance at 1 July 2023 is $30 000. The annual premium of $144 000 was paid in March 2024, with $138 000 expensed during the year ended 30 June 2024. Prepare the Prepaid insurance T account.