Statement of comprehensive income for the year ended 30 June 2020

Gross profit 730 000

Expenses

Administration expenses 80,000

Salaries and wages 200 000

Long service leave 20 000

Insurance 20 000

Warranty expense 30 000

Depreciation plant 80 000 430,000

Profit before income tax 300 000

Statement of Financial Position as at 30 June 2020

Assets

Cash 20 000

Accounts Receivable 100 000

Inventory 100 000

Prepaid insurance 10 000

Machinery (cost) 400 000

Less: Accumulated depreciation (80 000) 320 000

Total assets 550 000

Liabilities

Accounts payable 80 000

Provision for long-service leave 20 000

Loan payable 200 000

Provision for warranty expenses 20 000

Total liabilities 320 000

Net Assets 230 000

Shareholders equity

Share capital 150 000

Retained earnings 80 000

230 000

Other Information

• All administration and salaries and wages expenses incurred have been paid at year end
• None of the long-service leave expense has been paid
• Warranty expenses were accrued and at year end actual payments of $10,000 had been made
• Insurance was initially prepaid to the amount of $30,000. At year end the unused component of the prepaid insurance account was $10,000
• The plant is depreciated over five years for accounting purposes, but over four years for taxation purposes.
• Tax rate is 30 per cent

Required:

1. Provide the general journal entry(ies) to account for tax in accordance with AASB112 at 30 June 2020? Show workings.
2. Why is tax-effect accounting known as the balance sheet approach to accounting for income tax?