Question Three: Accounting For Tax

Amber Ltd's accountant has asked you to prepare the tax-effect accounting adjustments for the year ended 31 March 2021. Investigations revealed the following information.

i.In October 2019, the New Zealand government decreased the company tax rate from 40 cents to 30 cents in the dollar, effective from 1 April 2020.

ii.The profit for the year ended 31 March 2021 was $690,000.

iii.The company is entitled to claim a tax deduction of 120% for development expenditure in the year of expenditure. The company has adopted the accounting policy of capitalising and then amortising the expenditure over five years. The company paid $90,000 in development expenses during the year.

iv.Revenue for the year included non-taxable income of $94,500

v.Expenses brought to account included depreciation buildings, $21,750, Depreciation plant: $52,500, Goodwill impairment $15,000, amortisation development expenditure $48,000.

vi.Goodwill impairment is not deductible for taxation.

vii.Accumulated depreciation on plant for tax purposes was $135,000 on 31 March 2020, and $213,750 on 31 March 2021.

viii.Bad debts of $10,500 were written off during the year, and warranty repairs to the value of $16,500 were carried out. There was no tax deduction for long service leave in the current year.

ix.Buildings are depreciated in the accounting records but no deduction is allowed for tax purposes.

x.The assets and liabilities at 31 March 2020 and 31 March 2021 were:

2021 2020 Cash $75,000 $63,750 Accounts receivable 176,250 150,000 Allowance (or doubtful debts (9,750) (9,000) Inventories 187,500 165,000 Buildings 600,000 600,000 Accumulated depreciation buildings (74,250) (52,500) Plant 450,000 450,000 Accumulated depreciation plant (142,500) (90,000) Development expenditure at cost 240,000 150,000 Accumulated amortisation development expenditure (108,000) (60,000) Deferred tax asset ? 22,200 Goodwill (net) 15,000 30,000 Accounts payable 127,500 112,500 Deferred tax liability ? 54,000 Provision for long service leave 27,000 21,000 Provision for warranty 24,000 25,500