Part B (15 marks) This question is not related to Part A

The following represents an extract from the Statement of Financial Position of the assets and liabilities of Power Limited for the years ending 30 June 2020 and 2019.

	2020	2019
	$	$
Assets
Cash	14,000	17,000
Accounts receivable	13,750	11,500
Allowance for doubtful debts	(2,050)	(1,475)
Inventory	7,200	5,800
Rent receivable	1,800	1,450
Prepaid insurance	1,825	2,125
Deferred tax asset	?	3,038
Development costs	22,500	20,000
Less: Accumulated amortisation	(11,250)	(5,000)
Plant & equipment	30,000	41,250
Less: Accumulated depreciation	(18,000)	(18,750)
Liabilities
Accounts payable	4,750	4,250
Deferred tax liability	?	5,138
Unearned Interest revenue	3,500	3,150
Bank Loan	12,500	12,500
Provision for warranty costs	3,300	3,000

Additional Information:

1. Interest and rent revenue are assessable when the cash is received and deductible when the cash is paid. Insurance costs and warranty costs are allowed for tax deduction when the payment is made.

2. A deduction of 125% for development costs can be claimed when the costs are paid.

3. Doubtful debts are deductible for tax purposes when the debt is written off.

4. Power Ltd sold an item of equipment on 1 March 2020 for $6,500. For tax purposes the carrying amount of equipment sold was $4,750. There were no other disposals or acquisitions of equipment during the year.

5. The tax deduction for depreciation for 2020 was $4,500 and the accumulated depreciation at 30 June 2019 for taxation purposes was $16,250.

6. The current tax rate is 30%

Required:

1. Prepare the deferred tax worksheet for Power Limited for the year ended 30 June 2020 and prepare the necessary journal entries to record movements in the deferred tax accounts. (9 marks)

	Carrying amount	Tax Base	Taxable temporary difference	Deductible temporary difference

Journal entry:

b. Discuss using relevant examples the two main limitations of AASB112/IAS12 Accounting for income tax and suggest how these limitations could be addressed (6 marks).