The following relates to Artline Ltd. Net profit before tax is $80,000. A number of items included
Question:
The following relates to Artline Ltd.
Net profit before tax is $80,000. A number of items included in the determination of profit have to be treated differently for taxation purposes
Accounting Treatment | Taxation Treatment | |
$ | $ | |
Capital profit on asset sale | 15,000 | Nil |
Transfer to Warranty expense provision | 17,000 | Nil |
Depreciation expense - Plant and Equipment | 14,000 | 16,500 |
Transfer to Doubtful Debts allowance | 13,000 | Nil |
An extract from the balance sheet at balance day reveals:
Carrying | Tax | |
Amount | Base | |
Assets | $ | $ |
Plant and Equipment - at cost | 100,000 | 100,000 |
Accumulated Depreciation | - 60,000 | -62,500 |
40,000 | 37,500 | |
Accounts Receivable (net) | 73,000 | 81,000 |
Liabilities | ||
Provision for Warranty expense | 10,000 | Nil |
Rent received in Advance | 7,000 | Nil |
Additional Information
1. An amount of $7,000 for warranty expenses was paid and charged against the provision. This amount can now be claimed as a taxation deduction.
2. A bad debt for $5,000 has been written off against the allowance for doubtful debts. This amount can now be claimed as a taxation deduction.
3. The rent received in advance has been included in taxable income for the current year.
4. Income tax rate is 30%.
Task 2
Provide:
- A statement to determine taxable income; and
- All necessary general journal entries to record income tax expense and the tax effect of temporary differences. Present your workings for temporary differences in a table.
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett