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Simpson Ltd was established on 1 July 2019 with share capital totalling $132,000. One year later at 30 June 2020 the trial balance of the

Simpson Ltd was established on 1 July 2019 with share capital totalling $132,000.

One year later at 30 June 2020 the trial balance of the company was as follows:

Account

Debit

Credit

Cash

24,000

Accounts receivable

37,500

Allowance for doubtful debts

200

Interest receivable

100

Inventory

20,000

Prepaid insurance

300

Machinery (at cost)

79,000

Accumulated depreciation - Machinery

5,900

Vehicles

11,000

Accumulated depreciation - Vehicles

100

Goodwill

45,000

Accumulated impairment loss

300

Investments

25,000

Accounts payable

15,000

Rent payable

6,000

Provision for annual leave

1,800

Provision for services warranties

600

Share capital

132,000

Sales revenue

650,000

Interest revenue

500

Dividend revenue

300

Exempt income

400

Capital profit on sale of land

700

Cost of sales

175,000

Depreciation

6,000

Goodwill impairment loss

300

Salaries & wages

120,000

Annual leave

1,800

Rent

72,000

Insurance

1,200

Entertainment

400

Fines and penalties

100

Fringe benefits tax

200

Warranty expense

600

Doubtful debts

200

Other expenses

194,100

TOTAL

813,800

813,800

Additional information:

1. For tax purposes, depreciation on machinery is $14,000 and for vehicles $300, for the year ended 30 June 2020.

2. Doubtful debts, annual leave and service warranties are expensed in the year ending 30 June 2020 but are not tax deductible for tax purposes until paid.

3. Simpson Ltd has accrued annual leave entitlements of $1,800 in calculating net profit for the year ended 30 June 2020.

4. Service warranty expense is only deductible as a tax deduction when claimed by customers.

5. The company accrues doubtful debts expense as soon as it appears on a customers account as uncollectible. However, the bad debt is not allowable as a tax deduction until all avenues to collect the account have been exhausted.

6. The tax rate is 30% and taxable income is $79,500.

Required:

4. Prepare a balance sheet at 30 June 2020 (follow format in textbook on page 181 9th edition, showing one year only).

5. Discuss whether you think the deferred tax assets and liabilities are assets and liabilities in relation to the definitions contained in the conceptual framework (reference your written work to support your arguments). Maximum 300 words.

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