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Question 1: Topic 1 - Accounting for Company tax (30 marks) Jamie Ltds profit before tax for the year ended 30 June 2020 was $172,400.

Question 1: Topic 1 - Accounting for Company tax (30 marks)

Jamie Ltds profit before tax for the year ended 30 June 2020 was $172,400. Included in this profit are the following items of income and expense:

Amortisation of development costs

$12,000

Carrying amount of equipment sold

11,000

Depreciation building (6%)

15,000

Depreciation equipment (15%)

15,000

Depreciation motor vehicle (20%)

5,800

Doubtful debts expense

1,700

Employee benefits expense

7,000

Entertainment expense

3,500

Fines and penalties

4,400

Goodwill impairment

2,000

Insurance expense

1,400

Interest revenue

800

Proceeds on sale of equipment

19,000

Rent revenue

15,000

Royalty revenue (exempt income)

3,000

Warranty expense

7,000

At 30 June, the companys draft statements of financial position showed the following balances:

2020

2019

Assets

Cash

$14,300

$10,200

Accounts receivable

18,000

22,000

Allowance for doubtful debts

(2,000)

(3,500)

Inventories

33,000

43,500

Interest receivable

800

1,200

Prepaid Insurance

4,000

4,200

Rent receivable

3,900

3,700

Development costs

48,000

-

Accumulated amortisation

(12,000)

-

Motor vehicle

29,000

29,000

Accumulated depreciation

(23,200)

(17,400)

Equipment

100,000

120,000

Accumulated depreciation

(60,000)

(54,000)

Buildings

250,000

250,000

Accumulated depreciation

(90,000)

(75,000)

Deferred tax asset

?

24,060

Goodwill

12,000

12,000

Goodwill - accumulated impairment losses

(5,000)

(3,000)

Liabilities

Accounts payable

27,000

24,500

Current tax liability

?

7,600

Provision for employee benefits

12,500

8,000

Provision for warranties

8,700

4,200

Mortgage loan

160,000

150,000

Deferred tax liability

?

4,275

Additional information:

  1. A tax deduction for development costs on 125% of the amount spent during the year is available under the Tax Act. The profit reflects the amount of development costs amortised in the current period.
  2. A tax deduction of $10,000 (10%) can be claimed on equipment.
  3. The motor vehicle is depreciated at 25% for tax purposes.
  4. The equipment sold on 1 July 2019 cost $20,000 when it was purchased 3 years before the date of sale.
  5. Deductions are only available for annual leave when amounts are paid and not as they are accrued.
  6. Actual amounts paid for insurance are allowed as a tax deduction.
  7. No deduction is allowed for taxation purposes in relation to entertainment, fines, and penalties.
  8. Rent revenue and interest are taxable when amounts are received.
  9. Depreciation of buildings is not allowed as a tax deduction.
  10. The deferred tax asset (DTA) balance at 30 June 2019 comprised: a) DTAs relating to temporary differences: $10,110 b) DTAs relating to carried forward tax losses: $13,950
  11. No journal entries related to deferred tax have been recorded for the year ended 2020. Assume the tax balances at 30 June 2019 are correct.
  12. The tax rate is 30%.

Required:

  1. Prepare the current tax worksheet to calculate the current tax liability for the year ended 30 June 2020 (show all working). (15 marks)
  2. Prepare the deferred tax worksheet to calculate the deferred tax asset and liability balances and adjustments for the year ended 30 June 2020. Include all accounts and net balances where appropriate. (13 marks)
  3. Prepare the journal entries to recognise the current tax liability, deferred tax assets, and liabilities at 30 June 2020. (2 marks)

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