QUESTION 230 marks

Hayley Ltd prepared a draft statement of profit and loss (P/L) for the year ended 30 June 2020 which showed a profit before tax of $24500. The P/L included the following items of income and expense:

Government grant (exempt from tax)

7 500

Proceeds on sale of plant

23000

Bad debts expense

7100

Depreciation expense - plant

14000

Insurance expense

11900

Long-service leave expense

15500

Impairment of goodwill

10100

Carrying amount of plant sold

20000

The statements of financial position of Hayley Ltd at 30 June 2020 and 30 June 2019 include the following assets and liabilities:

HAYLEY LTD

Statement of Financial Position (Extract)

as at 30 June

2020

2019

Assets

Cash

Accounts receivable

Allowance for doubtful debts

Prepaid insurance

Plant

Accumulated depreciation - plant

Goodwill

Accumulated impairment losses

Deferred tax asset

Liabilities

Accounts payable

Provision for long-service leave

Current tax liability

Deferred tax liability

$

6000

96000

(6800)

3400

140000

(32000)

22200

(10100)

?

78000

13200

?

?

$

18000

85000

(5200)

5600

170000

(28000)

22200

9540

76000

9700

3780

Additional information

(a) For tax purposes the carrying amount of plant sold was $15000.

(b) The tax deduction for plant depreciation was $20250. The accumulated depreciation on plant for tax purposes at 30 June 2020 is $40250 (2019: $35000).

(c) In the year ended 30 June 2019, the company recorded a tax loss. At 1 July 2019 carry forward tax losses amounted to $16900. The company recognised a deferred tax asset in respect of these tax losses at 30 June 2019.

(d) Tax losses carried forward must be offset against any exempt income before being used to reduce taxable income.

(e) The company does not set off deferred tax liabilities and assets and the corporate tax rate is 30%.

Required

A. Prepare the current tax worksheet for the year ended 30 June 2020 and the tax journal entries.11 marks

B. Prepare the deferred tax worksheet as at 30 June 2020 and the tax journal entries.15 marks

C. What factors should the company consider before recognising the tax loss incurred in the year ended 30 June 2019 as a deferred tax asset?4 marks