QUESTION 4: INCOME TAX (18 Marks)

The accounting profit after tax for Ikaris Ltd for the year ended 30 June 2021 was $546,000 and included the following revenue and expense items: Training revenue $500,000 Government grant $10,000 Depreciation of equipment $150,000 Warranty expense $480,000 Doubtful debt expense $194,000

Additional information: 1. The training revenue relates to fees earned from the company providing specialised training in maintaining a range of its products. These fees are paid in advance to the company. The balance of the training revenue received in advance at 1 July 2020 was $91,000. 2. The equipment was purchased on 1 July 2018 for $920,000. The equipment has an expected useful life of 6 years and a residual value of $20,000. It is depreciated using straight-line method for accounting purposes. Tax depreciates at 25% per annum straight line on cost. 3. The plant was purchased on 1 July 2017 for $187,000. The plant has an expected useful life of 3 years with a residual value of $10,000 and is depreciated using straight-line method for accounting purposes. Tax depreciates at 20% per annum straight line on cost. 4. The balance of provision for warranties at the beginning of the period (1 July 2020) was $98,000. 5. Tax includes/treats training revenue and warranties on a cash basis. Bad/doubtful debts are only allowable as deductions when written off. 6. Goodwill is not deductible for tax purposes. 7. Government grant is not taxable income. 8. Total bad debts written off during the year were $185,000. 9. The opening balance of deferred tax asset and deferred tax liability at the beginning of the period were 79,500 and 75,000 respectively. 10. The company tax rate is 30%.

ACCT 2005d/s Financial Accounting 2 2021 SP2

Financial Accounting 2 SP2 2021 ACCT 2005 Final Exam, page 9 of 18

The extract from the statement of financial position for Ikaris Ltd as at 30 June 2021 is as follows:

Assets Cash 67,000 Inventory 635,000 Accounts receivable 924,000 Allowance for doubtful debts (81,000) Equipment 920,000 Accumulated depreciation_Equipment (450,000) Goodwill 26,000

Liabilities Accounts payable 98,000 Training revenue received in advance 69,000 Provision for warranties 85,000 Loan 150,000

REQUIRED (a) Reconcile accounting profit to taxable profit and calculate the current tax payable for Ikaris Ltd for 30 June 2021. The journal entries are NOT required.

[8 marks]

(b) Complete the tax effect worksheet (provided in the Answer Booklet) as at 30 June 2021. The journal entries are NOT required.

[10 marks]

TOTAL MARKS FOR QUESTION 4 = 8 + 10 = 18 MARKS