Reed Ltd is a manufacturer of surfboards which commenced operations on 1 July 2019. The Statement of Comprehensive Income and the Statement of Financial Position were compiled on 30 June 2020. The following information was available:

Statement of Comprehensive Income for the year ended 30 June 2020 $ $

Sales 430,000

Less Cost of Goods Sold 130,000

Administrative expense 70,000

Warranty expense 60,000

Depreciation- machine 40,000

Insurance expense 20,000 320,000

Profit before income tax 110,000

Following information was extracted from the Statement of Financial Position at 30 June 2020:

2019 2020

Prepaid insurance 24,000 36,000

Machine 400,000 400,000

Less: Accumulated depreciation 40,000 80,000

Provision for warranty 34,000 28,000

Other information was available for the year ended 30 June 2020:

Sales are recorded for income tax purpose at the time the sales are made.

Cost of Goods Sold and administrative expense incurred have been paid. They are allowed as a tax deduction at the year end.

Warranty expense was accrued. Deduction for income tax purpose is available only when the amount is paid.

The machine was purchased two years ago at a value of $400,000.

It is depreciated evenly over its useful life and it has no residual value.

The useful life is ten years based on accounting policy, but it is depreciated over eight years according to the taxation rule.

Insurance is allowed as a tax deduction when it is paid.

Income tax rate is 30%.

Required: (Narrations are not required in this question)

1.Determine the amount of taxable income for the year ended 30 June 2020.

2.Determine the amount of income tax expense for the year ended 30 June 2020.

3.Prepare a journal entry to record current tax liability on 30 June 2020.

4.Determine the amount of tax base for machine.

5.Determine the amount of temporary difference for machine.

6.The temporary difference for machine is deductible in this question, is this correct? Explain.

7.Provide journal entry to record DTA or DTL for machine.