Question
these are all the info provided - no missing figures Background information The profit before tax, reported in the statement of comprehensive incme of Luckmore
these are all the info provided - no missing figures
Background information | ||
The profit before tax, reported in the statement of comprehensive incme of Luckmore Ltd for the year ended 30 June | 2020 | |
amounted to: | 2,780,000 |
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|
| |
Subscription revenue | 86,000 |
|
Government award income | 156,000 |
|
Doubtful debts expense | 17,000 |
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Depreciation (Equipment) | 112,900 |
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Depreciation (Buildings) | 27,000 |
|
Maintenance expense | 78,000 |
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Employee benefits expense | 52,000 |
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Rent expense | 26,000 |
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Entertainment expense | 43,400 |
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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 | 182,000 | 199,000 |
Inventory | 390,000 | 356,000 |
Accounts receivable | 1,129,000 | 1,077,000 |
Allowance for doubtful debts | (90,000) | (83,000) |
Prepaid rent | 48,000 | 45,000 |
Equipment | 1,129,000 | 1,129,000 |
Accumulated depreciation - Equipment | (564,500) | (451,600) |
Buildings | 695,000 | 695,000 |
Accumulated depreciation - Buildings | (278,000) | (250,000) |
Land | 434,000 | 434,000 |
Goodwill (net) | 173,000 | 173,000 |
Deferred tax asset | ? | 8,460 |
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| |
Liabilities |
| |
Accounts payable | 660,000 | 590,000 |
Provision for maintenance | 139,000 | 104,000 |
Provision for employee benefits | 95,000 | 69,000 |
Subscription received in advance | 60,000 | 43,000 |
Deferred tax liability | ? | 0 |
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| |
Additional Information: | ||
Subscription revenue is tax assessable when it is received in cash | ||
Government award income is not tax assessable | ||
Doubtful debts are tax deductible when the company actually incurs bad debts/write off | ||
For accounting purpose, the equipment is depreciated using the annual straight line method at a rate of: | 10% | |
For tax purpose, however, the equipment is depreciated using the annual straight line method at a rate of: | 15% | |
Depreciation of buildings is not allowed as tax deductions and goodwill is not tax assessable | ||
Employee benefits are tax deductible when they are paid in cash to the employees | ||
Rent expense and maintenance expense are tax deductible when paid in cash | ||
Entertainment expense is not allowed as tax deduction | ||
Assume a tax rate for the financial years ending 30 June 2019 and 2020 to be: | 30% | |
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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. | ||
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Calculate deferred tax asset and deferred tax liability balances as at 30 June 2020. | ||
Prepare the deferred tax journal entries for the year ended 30 June 2020. | ||
Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances. | ||
Show your calculation using deferred tax worksheets by creating separate columns for: | ||
carrying amount, tax base, taxable temporary differences and deductible temporary differences. | ||
| ||
Assume that by 1 December 2020 there was a change in tax rate to: | 27.50% | |
With reference to AASB112 Income Taxes, discuss the accounting treatment of the deferred tax asset and deferred tax liability | ||
balances as at 1 December 2020 following a lower tax threshold for the 2020-2021 financial year. | ||
Prepare the journal entries to record the effect of change in tax rate. | ||
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