Question
You are provided with the following information from the financial statements of T Inc. for the Year Ended 31st March 2020: Sales 500,000 Accrued Income
You are provided with the following information from the financial statements of T Inc. for the Year Ended 31st March 2020:
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Sales | 500,000 |
Accrued Income | 40,000 |
Cost of Goods Sold | 125,000 |
Depreciation | 4,000 |
Salaries | 200,000 |
Rent & Rates | 80,000 |
Advertisement | 45,000 |
Client Entertainment | 50,000 |
Bad Debt provision | 10,000 |
Bank interest charges | 3,000 |
Companies House late filing penalties | 1,000 |
Other information:
- The Bad Debt provision of 10,000 is made up of 2,000 outstanding debt from one of its major customer Zoe Ltd, and the remaining 8,000 is based on 2% of the Tudors credit sales for the year, as in line with the companys policy.
- Delivery Van originally costing 20,000 with an accumulated depreciation of 8,000
- The applicable corporate tax rate for that year is 30% and capital allowance rate is 18% (straight-line basis with no first-year allowances).
Required:
a. Calculate the taxable profit for the year ending 31st March 2020
b. Provide the journal entries to account for tax in accordance with IAS 12, supported by the tax reconciliation.
c. IAS 16 states that a companys depreciation method used shall reflect the pattern in which the assets future economic benefits are expected to be consumed by the company. Using the example above, explain why it gives rise to timing differences.
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