Question 2 (30 marks)

The profit before tax, as reported in the statement of profit and loss for Aileen Ltd for the year ended 30 June 2019, amounted to $100,000, including the following revenue and expense items:

The draft statement of financial position of Aileen Ltd at 30 June 2019 and the statement from last year showed the following assets and liabilities:

Additional information:

In the year ended 30 June 2018, Aileen Ltd had a tax loss of $65,000 that it carried over in the deferred tax asset. In June 2019, the company received an amended assessment for the year ended 30 June 2019 from the ATO, indicating that an amount of $5,000 claimed as a deduction has been disallowed. Aileen Ltd has not yet adjusted its accounts to reflect the amendment. The remaining losses can be used to offset taxable incomes in future periods.

Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. All other general taxation rules apply.

The depreciation regimes for the financial reports and the company income tax return respectively, are listed below.

All research and development expenses were paid in cash during the year ended 30 June

2019. A tax deduction for development costs of 120% of the $80,000 spent during the

year is available.

All movements of deferred tax accounts during the year are not yet recongised.

REQUIRED:

(a) Determine the taxable profit for the year ended 30 June 2019. Start from the accounting profit before tax and show the adjustments for differences between taxation and accounting rules. (12 marks)

(b) Complete the worksheet on the additional page provided to determine the movements in the deferred tax accounts for the year ended 30 June 2019. (15 marks)

(c) Prepare the journal entries to recognise the current tax liability and the final deferred tax adjustments for the year ended 30 June 2019 including the movement during the year due to carry-forward tax loss. Note Aileen Ltd does not set off the deferred tax accounts against each other. (3 marks)

Revenues Sales revenue Interest revenue Government grant $650,000 50,000 50,000 Expenses Cost of goods sold Bad debts expense Depreciation expense - equipment Depreciation expense plant Research and development expense Wages expense Long service leave expense 400,000 10,000 4,500 18,500 80,000 120,000 20,000 2018 2019 Assets Cash Inventory Accounts receivable Allowance for doubtful debts Interest receivable Equipmentcost Accumulated depreciation-equipment Plant-cost Accumulated depreciation-plant Goodwill Deferred tax asset $30,000 100,000 50,000 (5,000) 25,000 30,000 (9,000) 200,000 (37,000) 15,000 33,000 $30,000 150,000 70,000 (10,000) 20,000 30,000 (13,500) 200,000 (55,500) 15,000 60,000 50,000 Liabilities Accounts payable Wages payable Revenue received in advance Loan payable Provision for long-service leave Deferred tax liability 40,000 80,000 20,000 100,000 30,000 200,000 40,000 24,000 Equipment Plant Depreciation Regimes Depreciation rate: Accounting 15% 30% 10 yrs 8 yrs Tax | Method: Accounting Tax Residual: Straight-line Reducing Balance Zero Straight-line Straight-line $15,000 Revenues Sales revenue Interest revenue Government grant $650,000 50,000 50,000 Expenses Cost of goods sold Bad debts expense Depreciation expense - equipment Depreciation expense plant Research and development expense Wages expense Long service leave expense 400,000 10,000 4,500 18,500 80,000 120,000 20,000 2018 2019 Assets Cash Inventory Accounts receivable Allowance for doubtful debts Interest receivable Equipmentcost Accumulated depreciation-equipment Plant-cost Accumulated depreciation-plant Goodwill Deferred tax asset $30,000 100,000 50,000 (5,000) 25,000 30,000 (9,000) 200,000 (37,000) 15,000 33,000 $30,000 150,000 70,000 (10,000) 20,000 30,000 (13,500) 200,000 (55,500) 15,000 60,000 50,000 Liabilities Accounts payable Wages payable Revenue received in advance Loan payable Provision for long-service leave Deferred tax liability 40,000 80,000 20,000 100,000 30,000 200,000 40,000 24,000 Equipment Plant Depreciation Regimes Depreciation rate: Accounting 15% 30% 10 yrs 8 yrs Tax | Method: Accounting Tax Residual: Straight-line Reducing Balance Zero Straight-line Straight-line $15,000