Accounting for income tax Tulip Ltd commenced business on 1 July 2018, with share capital of $700,000.
Question:
Accounting for income tax
Tulip Ltd commenced business on 1 July 2018, with share capital of $700,000. The following information is available for the year ended 30 June 2019:
Calculation of profit for the year ended 30 June 2019
$
$
Income:
Revenue
1 430 000
Royalty (exempt from income tax)
10 000
Expenses:
Cost of sales
725 000
Advertising expense
204 000
Annual leave expense
24 000
Depreciation – equipment
35 000
Depreciation – motor vehicles
20 000
Doubtful debts expense
14 000
Entertainment (not tax deductible)
2 000
Insurance expense
14 000
Interest expense
17 000
Motor vehicle expenses
3 000
Rent expense
87 000
Repairs and maintenance
6 000
Salaries and wages
298 000
Telephone
5 000
Warranty expenses
18 000
Other expenses
42 000
1 514 000
Accounting profit/(loss) before tax
(74 000)
Assets and liabilities as at 30 June 2019
$
$
Assets
Cash
12 000
Inventory
146 000
Accounts receivable
193 000
Less: allowance for doubtful debts
(12 000)
181 000
Prepaid insurance
3 000
Equipment – cost
400 000
Less: accumulated depreciation
(35 000)
365 000
Motor vehicles – cost
150 000
Less: accumulated depreciation
(20 000)
130 000
Total assets
837 000
Liabilities
Accounts payable
4 000
Bank loan
170 000
Provision for annual leave
22 000
Provision for warranties
15 000
Total liabilities
211 000
Additional information:
The directors have advised that they did spend a significant amount of money on advertising and salaries and wages during 2019, as Tulip Ltd sought to market the business and its products to consumers. The directors expect to see significant profits in the next financial year given the success of their advertising campaigns.The company purchased equipment at a cost of $400,000 on 1 July 2018. The equipment is depreciated over eight years for accounting purposes, and five years for taxation purposes (using the straight-line basis of depreciation, and a residual value of $120,000). The company purchased motor vehicles at a cost of $150,000 on 1 July 2018. The motor vehicles are depreciated over six years for accounting purposes, and eight years for taxation purposes (using the straight-line basis of depreciation, and a residual value of $30,000). Tax deductions for annual leave, warranties, insurance are available when the amounts are paid, and not as amounts are accrued.Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.The tax rate is 30%.
Required:
i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Tulip Ltd as at 30 June 2019, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings.
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.
Expert Answer:
To determine the balance of current tax liability and deferred tax assets and liabilities for Tulip Ltd as at 30 June 2019 we need to calculate the ta... View the full answer
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
