Question 1: Ken owns the right to a fast food franchise. On 1 July 2018 it sold the right to open a new outlet to Sam. The franchise is for a period of five years. Ken received an initial fee of $100,000 and will receive $10,000 per annum thereafter. Ken has continuing service obligation on its franchise for advertising and product development, that amount is $16,000 per annum for each franchise outlet and paid as cash. A reasonable profit margin on the provision of the continuing services is deemed to be 20% of the revenues received. Required: Discuss how the contract should be accounted for under AASB 15 Revenue from Contracts with Customers in Kens books. The discussion should include the accompanying accounting treatment up to 30 June 2023 including the relevant journal entries.

Question 2: You are asked by your director who doesnt have any accounting background knowledge to explain the purpose of preparing a deferred tax worksheet and its impact on financial performance and position in the current reporting period and future. Your report should refer the worksheet that you have prepared in part (b) and demonstrate a good understanding of AASB 112 Income Taxes including different types of temporary differences and excluded temporary difference.

Part B: a) Using Sheet 2 ("Calculating Taxable Income"), calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30th June 2023. Prepare a journal entry to recognise the current tax liability/tax loss. b) Calculate the Deferred Tax Asset and Deferred Tax Liability balances as at 30th June 2023. Prepare the deferred tax journal entry for the year ended 30th June 2023. Note that you are NOT required to prepare a journal entry to offset the Deferred Tax Asset and Deferred Tax Liability balances. c) Assume that by 1 December 2023 there was a change in tax rate from 30% to 27.5%. Briefly discuss the accounting treatment under accounting standard AASB112 "Income Taxes" for the Deferred Tax Asset and Deferred Tax Liability balances as at 1 December 2023 given that the company may now be in a lower tax threshold for the 2023-2024 financial year (maximum 100 words in the space provided). Should you believe an accounting change is necessary, prepare the journal entry to record the effect of the change in tax rate.

Background information The profit before tax, reported in the statement of comprehensive income of Dave Ltd for the year ended 30 June 2023 amounted to: 47,90,000

Service revenue 1,49,000

Prize money 2,69,000

Doubtful debts expense 29,000

Depreciation (Vehicle) 2,91,750

Depreciation (Buildings) 89,775

Maintenance expense 1,34,000

Warranties expense 89,000

Insurance expense 44,000

Government issued fine 74,800

The draft statements of financial position of the company at 30 June 2023 and 2022 showed the following assets and liabilities: 2023 ($) 2022 ($) Assets Cash 3,14,000 3,44,000

Inventory 6,73,000 6,13,000

Accounts receivable 19,45,000 18,56,000

Allowance for doubtful debts -1,55,000 -1,43,000

Prepaid insurance 83,000 77,000

Vehicle 19,45,000 19,45,000

Accumulated depreciation - Vehicle -11,67,000 -8,75,250

Buildings 11,97,000 11,97,000

Accumulated depreciation - Buildings -7,18,200 -6,28,425

Land 7,48,000 7,48,000

Patents 2,99,000 2,99,000

Deferred tax asset ? 43,875

Liabilities Accounts payable 11,37,000 10,17,000

Provision for maintenance 2,39,000 1,79,000

Provision for warranties 1,64,000 1,19,000

Service revenue received in advance 1,04,000 74,000

Deferred tax liability ? 0

Additional Information: Service revenue is tax assessable when it is received in cash

Prize money is not tax assessable

Doubtful debts are tax deductible when the company actually incurs bad debts/write off

For accounting purpose, the vehicle is depreciated using the annual straight line method at a rate of: 15%

For tax purpose, however, the vehicle is depreciated using the annual straight line method at a rate of: 20%

Depreciation of buildings is not allowed as tax deductions and patents are not tax assesable

Warranties are tax deductible when they are paid in cash to affected customers insurance expense and maintenance expense are tax deductible when paid in cash

Government issued fine is not allowed as tax deduction

Assume a tax rate for the financial years ending 30 June 2022 and 2023 to be: 30%

Required: Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30 June 2023. Prepare a journal entry to recognise the current tax liability/tax loss.

b) Calculate deferred tax asset and deferred tax liability balances as at 30 June 2023. Prepare the deferred tax journal entries for the year ended 30 June 2023. Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances. Show your calculation using deferred tax worksheets by creating separate columns for: carrying amount, tax base, taxable temporary differences and deductible temporary differences. Assume that by 1 December 2023 there was a change in tax rate to: 27.50%

With reference to AASB112 Income Taxes, discuss the accounting treatment of the deferred tax asset and deferred tax liability balances as at 1 December 2023 following a lower tax threshold for the 2023-2024 financial year. Prepare the journal entries to record the effect of change in tax rate.