Qno 1

Greenacres Ltd Is an organic farming company that sells organic fruit and vegetables as well as seeds and seedlings to its customers. The company commenced operations on July 12019. An accounting profit before income tax of $420,000 was reported for the year ended 30 June 2020. This accounting profit included the following:

Depreciation of equipment $50,000

Impairment of goodwill $15,000

Long service leaves $35,000

Annual leave $25,000

Doubtful debts $45,000

Assets 2020 2019

$ $

Cash at bank 85,000 75,000

Inventory 160,000 130,000

Accounts receivable 685,000 530,000

Provision for doubtful debts (45,000) ( 25,000)

Equipment 450,000 450,000

Accumulated depreciation - equipment (150,000) (100,000)

Goodwill 70,000 70,000

Accumulated Impairment losses - goodwill (15,000) -

Deferred tax asset ? ? 45,000

Liabilities

Accounts payable 365,000 274,000

Accrued long service leave 65,000 35,000

Accrued annual leave 55,000 30,000

Deferred tax liability ? 7,000

Additional information

e Total revenue for the 2020 financial year was $6,500,000.

e Accumulated depreciation on equipment for tax purposes as at 30 June 2019

was $180,000. Tax depreciation for the year ended 30 June 2020 was $40,000.

e Bad debts written off amounted to $45,000 for the year ended 30 June 2020.

e Payments for long service leave for the financial year 2020 were $25,000

e Annual leave paid during the financial year 2020 amounted to $35,000.

e The company tax rate is 30%.

Required:

a) Determine the taxable income for the financial year ended 30 June 2020.

(3 marks)

(b) Provide the amount for income tax expense for the year ended 30 June 2020.

(1 mark)

(c) Prepare the journal entry to record the current tax liability as at 30 June 2020.

(1 mark)

(d) Prepare a deferred tax worksheet that incorporates taxable and deductible

temporary differences. (6 marks)

(e) What was the temporary difference for the equipment for 30 June 2020? What did

this temporary difference mean for Greenacres Ltd? (2 marks)

(f) Prepare the journal entrees for deferred tax assets and deferred tax liabilities as at

30 June 2020. (2 marks)