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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
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 Page 5 of 7 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
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
Page 5 of 7
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
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