The internal profit and loss statement before tax for Simon Ltd for the year ended 30 June 2017 is as follows: Income Sales 640,000 Rent 20,000 Prize for the employer of month 5,000 665,000 Expenses Cost of goods sold 370,000 Depreciation of buildings 3,200 Depreciation of plant 30,000 Depreciation of computers 25,000 Depreciation of vehicles 15,000 Salaries and wages 85,000 Insurance 20,000 Long service leave expense 3,000 Other expenses 38,800 590,000 Profit before income tax 75,000 Additional information:

• Rent revenue for the year relates to one floor of the company’s head office building. This was previously surplus to requirements and so was rented out but in February 2017 Simon Ltd required this office space and ceased renting this floor. The balance of rent received in advance in the statement of financial position as at 30 June 2016 was $7,000.

• Simon Ltd was awarded (and paid) $5,000 in March 2017 as part of a government scheme to reward ‘good’ employers. This prize is not taxable (i.e. exempt from tax).

• The building was purchased on 1 July 2016 for $80,000 and is depreciated at 4% straight-line on cost per annum (with no residual value).

• The plant was purchased on 1 July 2015 for $220,000 and is depreciated for accounting straight-line over 7 years with a residual value of $10,000. Tax depreciates at 10% of cost.

• The computers were purchased on 1 July 2014 for $100,000 and are depreciated for accounting straight-line over 4 years with no residual value. Tax depreciates at 50% of cost.

• The vehicles were purchased on 1 July 2013 for $90,000 and are depreciated for accounting straight-line over 5 years with a residual value of $15,000. Tax depreciates at 25% of cost.

• In the statements of financial positions for years ended 30 June 2016 and 2017 there are no balances of accrued wages or salaries (or prepayments).

• The balance of prepaid insurance was $18,000 at 30 June 2016 and $24,000 at 30 June 2017.

• The balance of long service leave provision in the statement of financial position was $3,000 at 30 June 2016 and $6,000 at 30 June 2017.

• Other expenses include $11,000 of entertainment expenses. The balance of accrued entertainment expenses in the statement of financial position was $5,000 at 30 June 2016 and $7,000 at 30 June 2017.

• Sales (and cost of goods sold) are recognized on an accrual basis for both accounting and tax purposes.

• Rent revenue, salaries and wages, long service leave and insurance are recognized for tax purposes on a cash basis.

• Entertainment expenses and depreciation for buildings are not allowable as deductions for tax purposes.

• The tax rate is 30%. Required: Prepare a statement reconciling accounting profit to taxable profit and calculate the current tax liability as at 30 June 2017.

Answer rating: 100% (QA)

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