The draft statements of financial position of the company at 30 June 2020 and 2019 showed the following assets and liabilities; 2020 ($) 2019 ($) Assets Cash 557,000 000 019 Inventory 1,193,000 1,087,000 Accounts receivable 3,449,000 3,289,000 Allowance for doubtful debts (275,000) (254,000) Prepaid insurance 148,000 137,000 Vehicle 3,449,000 3,449,000 Accumulated depreciation - Vehicle (2,069,400) (1,552,050) Buildings 2,122,000 2,122,000 Accumulated depreciation - Buildings (849,000) (764,000) Land 1,326,000 1,326,000 Patents 530,000 530,000 Deferred tax asset ? 78,495 Liabilities Accounts payable 2,016,000 1,804,000 Provision for maintenance 424,000 318,000 Provision for warranties 291,000 212,000 Service revenue received in advance 185,000 132,000 Deferred tax liability ?Additional Information: Service revenue is tax assessable when it is received in cash Prize money is not tax assessable Doubtful debts are tax deductible when the company actually incurs bad debts/write off For accounting purpose, the vehicle is depreciated using the annual straight line method at a rate of: 15% For tax purpose, however, the vehicle is depreciated using the annual straight line method at a rate of: 20% Depreciation of buildings is not allowed as tax deductions and patents are not tax assesable Warranties are tax deductible when they are paid in cash to affected customers insurance expense and maintenance expense are tax deductible when paid in cash Government issued fine is not allowed as tax deduction Assume a tax rate for the financial years ending 30 June 2019 and 2020 to be: 30% Required: Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30 June 2020. Prepare a journal entry to recognise the current tax liability/tax loss.Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30th June 2020. Prepare a journal entry to recognise the current tax liability/tax loss Accounting Profit before tax 8,490,000 Workings: Add accounting expenses that are different from tax perspective Allowance for doubtful debts Doubtful debts expense 53,000 Opening bal (254,000) Maitenance expense 238,000 Write off (32,000) |Doubtful debts expense (53,000) Insurance expense 79,000 Closing Bal (275,000) Warranties expense 159,000 Depreciation of vehicle 517,350 Depreciation of buildings 84,000 Provision for maitenance Opening Bal 318,000 Deduct Tax expenses Cash (132,000) Maitenance expense 238,000 Bad debts written off (32,000) Closing Bal 424,000 Maitenance paid (132,000) Insurance paid (90,000) Warranties paid (80,000) Provision for warranties Tax depreciation (Vehicle) 517,350 x 1.5 (776,050) Opening Bal 212,000 Cash (80,000) Warranties expense 159,000 Deduct accounting income that is different from tax perspective Closing Bal 291,000 Service revenue (265,000) Prize money (477,000) Prepaid Insurance Opening Bal 137,000 Insurance expense 79,000 Add assessable/tax income Cast (90,000) Service revenue received in advance 318,000 Closing Bal 148,000 Taxable income 11,790,400 * Tax rate @30% Service Revenue received in advance Current tax liability 3,537,120 Opening Bal 132,000 Service revenue 265,000 Cash 318,000 Closing Bal 185,000Journal entry: Dr Cr Income Tax Expense 3,537,120 Current tax liability/income tax payable 3,537,120