Question 5 (11 marks)

Yellow River Ltd purchased a machine on 1 July 2016 at a cost of $1280,000. The machine is expected to have a useful life of 4 years (straight line basis) and no residual value. For taxation purposes, the ATO allows the company to depreciate the asset over 5 years.

The profit before tax for the company for the year ending 30 June 2017 is $1200,000. To calculate this profit the company has deducted $120,000 government-imposed penalties expense, and $160,000 wages expense that has not yet been paid. Also, the company has included $140,000 interest as income that the company has not yet received. During the year, the company has received $40000 in advance revenue that has not yet been earned. The company qualifies for off-setting deferred tax assets against deferred tax liabilities. The tax rate is 30%.

Required:

1. Calculate the company's taxable profit and hence its tax payable for 2017. (3 marks)
2. Determine the deferred tax liability and/or deferred tax asset that will result. (4 marks)
3. Prepare the necessary journal entries at 30 June 2017. (4 marks)