Sunshine Limited commences operations on 1 July 2015. One year after the commencement of its operations the company prepares the following information which shows both the carrying amounts for accounting purposes and the tax bases of the companys respective assets and liabilities.

	Carrying Amount($)	Tax Bases ($)
Assets
Cash	200,000	200,000
Accounts Receivable-net	215,000	250,000
Prepaid insurance	24,000	-
Inventory	180,000	180,000
Plant-net	825,000	1,000,000
Land	2,500,000	2,200,000
	3,944,000	3,830,000
Liabilities
Accounts payable	160,000	160,000
Provision for long service leave	58,000	-
Provision for warranty	80,000	-
Loan payable	2,000,000	2,000,000
	2,298,000	2,160,000
Net assets	1,646,000	1,670,000

Other information

After adjusting for differences between the tax rules and accounting rules it is determined that the taxable profit of Sunshine Limited is $950,000.

There is an allowance for doubtful debts of $18,000.

An item of plant with a carrying amount of $240,000 has be revaluated to $280,000. This adjustment has not been reflected in the numbers provided above.

Sunshine Limited has land which cost $2,200,000 which has been re-valued to a fair value of $2,500,000 in accordance with NZ IAS 16 Property Plant and Equipment.

None of the amounts accrued in respect of warranty expenses or long-service leave has actually been paid.

The tax rate is 35 percent.

Required

Prepare the year-end journal entries to account for taxation using the balance sheet method. Your answer must be supported by an appropriate balance sheet method worksheet that clearly shows how your journal entry items are calculated. (5 Marks)

Consider how you might defend the companys current taxation practices. For example, is there any overall advantage to the company in pursuing its current taxation practices? (consider the implications of the accounting standards and the tax legislation) (3 Marks)

Describe the impact on the tax payable if it was later discovered that entertainment expenses of $4000 had been mistakenly coded to electricity expenses. (2 Marks)

Provide a rationale for the non-deductibility of depreciation on buildings. (2 Marks)