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 1,025,500 Government grant - exempt income 12,400 1,037,900 Cost of sales 429,000 Depreciation machinery 15,000 Goodwill impairment loss 2,000 Salaries and wages 120,000 Annual leave 3,800 Rent of premises 104,000 Insurance 4,200 Entertainment 2,500 Warranty expense 4,400 Doubtful debts expense 8,000 Other expenses 182,100 875,000 Accounting profit before tax 162,900 Extract from Statement of Financial Position as at 30 June 2021 Assets $ $ Cash 129 100 Accounts receivable 83 000 Less: provision for doubtful debts (3 000) 80 000 Inventory 65 000 Prepaid insurance 2 200 Machinery cost 90 000 Less: accumulated depreciation (15 000) 75 000 Goodwill 45 000 Less: accumulated impairment loss (2 000) 43 000 Investments 95 000 Total assets 489 300 Liabilities Accounts payable 112 600 Rent payable 8 000 Provision for warranties 4 000 Provision for annual leave 1 800 Total liabilities 126 400 Net assets 362 900 Shareholders equity Share capital 200 000 Retained earnings 162 900 362 900 Page 6 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.