QUESTION 3 (15 MARKS)

May Ltd commenced operations on 1 July 2020. The following has been extracted from their internal reports for the first year of operations:

Income Statement (Extract) for the year ended 30 June 2021

$ $

Gross profit.............................................................................................. 990,000

Expenses

Administration expenses........................................................... 60,000

Doubtful debts expense ................................................9 000

Salaries and on-costs............................................................... 300 000

Interest....................................................................................... 30 000

Long-service leave..................................................................... 42 000

Warranty expenses..................................................................... 45 000

Depreciation expense - plant..................................................... 50 000

Insurance expense...................................................................... 30 000 566 000

Accounting profit before income tax expense 424 000

Assets and liabilities as disclosed in the balance sheet as at 30 June 2021 were:

Assets

Cash...................................................................................................... 30,000

Inventory............................................................................................... 127 000

Accounts Receivable (net of $4,000 D. Debt Allowance)................... 150 000

Prepaid insurance.................................................................................. 15 500

Plant - cost.............................................................................. 200,000

Accum Depn - Plant.................................................................. 50 000 150 000

Liabilities

Accounts Payable................................................................................. 120 000

Provision for warranty.......................................................................... 37 500

Provision for long-service leave........................................................... 30 000

Loan Payable........................................................................................ 285 000

Additional information:

• Plant is depreciated straight-line with no residual value over four years for accounting purposes and two years for taxation purposes.
• Bad debts written off during the year were $5,000.
• Insurance, warranty and LSL are deductible for tax purposes when paid.
• The tax rate is 30%

Required:

1. 1. 1. For year ending 30 June 2021, calculate taxable income and its current tax consequences, clearly showing amounts for tax expense and tax payable.

(5 marks)

1. 1. 1. Showing all relevant workings using a tax worksheet, prepare journal entries for current and deferred tax consequences for the year ended 30 June 2021.