Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 4: Accounting for Income Tax (26 marks) The accounting profit before tax for Comfy Ltd for the year ended 30 June 2019 was $6,247,000

image text in transcribed

QUESTION 4: Accounting for Income Tax (26 marks) The accounting profit before tax for Comfy Ltd for the year ended 30 June 2019 was $6,247,000 and included the following revenue and expense items: Commission revenue $478,000 Depreciation of Equipment $62,000 Depreciation of Vehicles $235,000 Annual leave expense $1,430,000 Doubtful debts expense $45,600 Parking Fines $52,000 Additional information: . Comfy Ltd earns commission revenue when it refers its customers to another company (and certain other conditions are met-e.g. the customer buys at least $300 of the other companies products). The commission revenue is paid in arrears. The balance of accrued commission revenue at 30 June 2018 was $43,000. The equipment was purchased on 1 July 2013 for $489,000. The equipment has an expected useful life of 7 years and a residual value $55,000 and is depreciated using straight-line method for accounting purposes. Tax depreciates at 25% per annum straight line on cost. The vehicles were purchased on 1 July 2018 for $730,000. The vehicles have an expected useful life of 3 years and a residual value of $25,000 and are depreciated using straight-line method for accounting purposes. Tax depreciates at 25% per annum straight line on cost. The balance of the provision for annual leave at 30 June 2018 was $1,895,000. Total bad debts written off during the year were $64,000. Tax includes/treats commission revenue and annual leave on a cash basis. Bad/doubtful debts are only allowable as deductions when written off. Parking fines are not allowable as deductions for tax purposes. The tax rate 30%. The extract from the statement of financial position for the company as at 30 June 2019 is as follows: Assets $ Cash 79,000 Inventory 2,431,000 Accounts receivable 910,000 Allowance for doubtful debts (37,000) Accrued commission revenue 67,000 Deferred Tax Asset 784,000 489,000 Equipment Accumulated Depreciation - Equipment (372,000) Vehicles 730,000 Accumulated Depreciation - Vehicles (235,000) Liabilities Accounts payable 96,400 Parking fines payable 23,000 Provision for Annual Leave 2,105,000 Deferred Tax Liability 21,400 Prepare a statement reconciling accounting profit to taxable profit

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Case Studies In Forensic Accounting And Fraud Auditing

Authors: Professor D. Larry Crumbley, Wilson LaGraize, Christopher E. Peters

2nd Edition

0808041932, 978-0808041931

More Books

Students also viewed these Accounting questions