Question 1: TAX EFFECT ACCOUNTING The accounting profit before tax for the year ended 30 June 2013 for Lily Ltd amounted to $18 500 and included: Depreciation motor vehicle (25%) 4 500 Depreciation equipment (20%) 20 000 Rent revenue (taxable when received) 16 000 Royalty revenue (non-taxable) 5 000 Doubtful debts expense (deductible when written off) 2 300 Entertainment expense (non-deductible) 1 500 Proceeds on sale of equipment 19 000 Carrying amount of equipment sold 18 000 Annual leave expense (deductible when paid) 5 000 The draft statement of financial position at 30 June 2013 comprised the following assets and liabilities: 2013 2012 Assets Cash $ 11 500 $ 9 500 Receivables 12 000 14 000 Allowance for doubtful debts (3 000) (2 500) Inventory 19 000 21 500 Rent receivable 2 800 2 400 Motor vehicle 18 000 18 000 Accumulated depreciation motor vehicle (15 750) (11 250) Equipment 100 000 130 000 Accumulated depreciation equipment (60 000) (52 000) Deferred tax asset ? 6 450 136100 Liabilities Accounts payable 15 655 21 500 Provision for annual leave 4 500 6 000 Current tax liability ? 7 600 Deferred tax liability ? 2 745 37 845 Additional information (a) The company can claim a deduction of $15 000 (15%) for depreciation on equipment, but the motor vehicle is fully depreciated for tax purposes. (b) The equipment sold during the year had been purchased for $30 000 2 years before the date of sale. (c) The company tax rate is 30%. Required: 1. Determine the balance of any current and deferred tax assets and liabilities for Lily Ltd as at 30 June 2013, using appropriate worksheets. Show all workings; and 2. Prepare any necessary journal entries Question 2: VOCUS GROUP ACCOUNTS Use information relating to income tax in your Vocus Group accounts to answer the following: 1. What is the amount of income tax expense included in the profit or loss for the year? 2. What are the current and deferred tax components of income tax expense? 3. What is the amount of income tax payable in the balance sheet? 4. Describe and explain some of the temporary differences that represent the difference between income tax expense and income tax payable. 5. How much income tax was paid out in cash to the ATO during the year? Question 3: VOCUS GROUP ACCOUNTS Has Vocus recognised prior period tax losses as a deferred tax asset? If yes, for how much? In determining whether deferred tax assets relating to tax losses are to be recognised, what factors should be taken into consideration? On what basis is Vocus likely to have argued it should recognise its tax losses as an asset?