Topic 4: Accounting for income tax

Jom Ltd commenced operations on 1 July 2020, with share capital of $200,000. On 30 June 2021, the company presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position. The statements are prepared before considering taxation. The following information is available:

Statement of Profit or Loss and Other Comprehensive Income (Extract) for the year ended 30 June 2021

Sales revenue

Government grant - exempt income

Cost of sales

Depreciation machinery Goodwill impairment loss Salaries and wages

Annual leave

Rent of premises Insurance

Entertainment

Warranty expense

Doubtful debts expense Other expenses Accounting profit before tax

1,025,500 12,400 1,037,900

Extract from Statement of Financial Position as at

$$

429,000 15,000 2,000 120,000 3,800 104,000 4,200 2,500 4,400 8,000 182,100

875,000 162,900

30 June 2021

$

Assets

Cash

Accounts receivable

Less: provision for doubtful debts Inventory

Prepaid insurance

Machinery cost

Less: accumulated depreciation Goodwill

Less: accumulated impairment loss Investments

Total assets

Liabilities

Accounts payable

Rent payable

Provision for warranties Provision for annual leave Total liabilities

Net assets

Shareholders equity

Share capital Retained earnings

$

129 100 83 000

(3 000)

90 000 (15 000) 45 000 (2 000)

80 000 65 000 2 200

75 000

43 000

95 000 489 300

112 600 8 000 4 000 1 800 126 400 362 900

200 000 162 900 362 900

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Other information:

- All salary and wage expenses incurred have been paid as at year end.

- Deductions are only available for annual leave, warranties and rent when amounts

are paid and not as they are accrued.

- Actual amounts paid for insurance is allowed as a tax deduction.

- For taxation purposes, depreciation on machinery is $18,000 for the year ended 30

June 2021.

- No deduction is allowed for taxation purposes in relation to entertainment and

goodwill impairment losses.

- Amounts received from sales, including those on credit terms, are taxed at the time

the sale is made.

- Exempt income is not taxable.

- The tax rate is 30%.

Required:

(i) Calculate the taxable income and current tax liability for the year ended 30 June 2021.

(ii) Prepare a deferred tax worksheet to calculate the deferred tax asset and liability balances and adjustments required for the year ended 30 June 2021.

(iii) Prepare the necessary journal entries to record the current tax liability, deferred tax assets and deferred tax liabilities as at 30 June 2021.

Marking criteria for Question 3

Calculation of current tax liability Deferred tax worksheet

Journal entries

Total

Max. marks allocated

8 10 2 20