Exercise 6.4 ★ CURRENT AND DEFERRED TAX Myrtle Ltd has determined its accounting profi t before tax for the year ended 30 June 2013 to be £256 700. Included in this profi t are the items of revenue and expense shown below. Royalty revenue (non-taxable) Proceeds on sale of building Entertainment expense Depreciation expense — buildings Depreciation expense — plant Carrying amount of building sold Doubtful debts expense Annual leave expense Insurance expense Development expense £8 000 75 000 1 700 7 600 22 500 70 000 4 100 46 000 4 200 15 000 The company’s draft statement of fi nancial position at 30 June 2013 showed the following assets and liabilities: Assets Cash Accounts receivable Less: Allowance for doubtful debts £21 500 (4 100) £2 500 17 400 Inventory Prepaid insurance Land Buildings Less: Accumulated depreciation 170 000 (59 500) 31 600 4 500 75 000 110 500 Plant Less: Accumulated depreciation 150 000 (67 500) 82 500 Deferred tax asset (opening balance) 9 600 333 600 Liabilities Accounts payable Provision for annual leave Deferred tax liability (opening balance) Loan 25 000 10 000 6 000 140 000 £ 181 000 Additional information

(a) Quarterly income tax instalments paid during the year were: 28 October 2012 28 January 2013 28 April 2013 £ 18 000 17 500 18 000 with the fi nal balance due on 28 July 2013.

(b) The tax depreciation rate for plant (which cost £150 0003 years ago) is 20%. Depreciation on buildings is not deductible for taxation purposes.

(c) The building sold during the year had cost £100 000 when acquired 6 years ago. The company depreciates buildings at 5% p.a., straight-line. Any gain (loss) on sale of buildings is not taxable (i.e. not deductible).

(d) During the year, the following cash amounts were paid: Annual leave Insurance £52 000 3 700

(e) Bad debts of £3500 were written off against the allowance for doubtful debts during the year.

(f) The £15 000 spent (and expensed) on development during the year is not deductible for tax purposes until 30 June 2014. (g) Myrtle Ltd has tax losses amounting to £12 500 carried forward from prior years. (h) The company tax rate is 30%.

Required 1. Determine the balance of any current and deferred tax assets and liabilities for Myrtle Ltd as at 30 June 2013. 2. Prepare any necessary journal entries.