Question 3. (16 marks)

Michael Orchard Limited established and commenced operations on 1 July 2022.

On the same date, it purchased a Bob Cat Machine at a cost of $900,000. The machine is expected to have a useful life of 5 years, with benefits expected to be the same throughout its life. It will have no residual value at the end of the four years.

For accounting purposes then the depreciation expense will be $210,000 per year. For taxation purposes, The Australian Taxation Office allows the company to depreciate the asset over three years - that is $300,000 per year.

2022 $600,000

2023 $700,000

2024 $800,000

2025 $900,000

The tax rate is 30%

Requirements:

Calculate the Carrying Amount, Tax Base and Temporary Difference at the end of each financial year (8 Marks)

Calculate the tax payable for each financial year (4 Marks)

Record the journal entries for the income tax expense relating to the deferred tax liability and income tax payable (4 Marks)