Question $1$

On $30$ June $2021,$ Donald Ltd prepared its first statement of comprehensive income and its first statement of financial position. The statements were prepared before considering taxation. Donald Ltd commenced operations on $1$ July $2020.$ The following information was available on $30$ June $2021$

Statement of comprehensive income for the year ended $30$ June $2021$

Gross Profit $80,000$

Accounting profit before tax $28,000$

Long service leave Expenses $(10,000)$

Wages expense $(40,000)$

Rent expense $(15,000)$

Depreciation expense$-$ machinery $(6,000)$

Bad debt expense $(5,000)$

Assets and liabilities as shown in the statement of financial position

As at $30$ June $2021$

Assets

Machinery $40,000$

Accumulated depreciation $-$ machinery $(16,000)$

Inventories $45,000$

Prepaid rent $10,000$

Cash $25,000$

Accounts receivable $44,000$

Provision for doubtful debt $(8,000)$

Liabilities

Loan payable $35,000$

Accounts payable $20,000$

Revenue received in advance $10,000$

Provision for long service leave $15,000$

Additional information

$$ No bad debts were written off.

$$ The revenue received in advance is taxable income.

$$ The machinery was depreciated on a straight$-$line basis over $7$ years for accounting purposes, but over $5$years for taxation purposes. The machinery was not expected to have any residual value.

$$ All wages had been paid as at year end and were deductible for tax purposes.

$$ Rent was paid in advance on $1$ July $2020.$ Actual amounts paid were allowed as a tax deduction.

$$ None of the long service leave expenses has actually been paid. It is not deductible for tax until it is actually paid.

$$ The company tax rate was assumed to be $30\%.$

Required:

a$)$ Prepare the deferred tax worksheet and journal entries to adjust deferred tax accounts at $30$ June $2021.$

b$)$ Explain the rationale for the treatment on each item and journal entry.