Question 1
Accounting for income tax
Frog Ltd has prepared its draft statement of profit or loss and other comprehensive income and statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:
Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2015
| |
$ |
$ |
| Gross profit |
|
758,000 |
| Other income: |
|
|
| Rent revenue |
|
14,000 |
| Royalty revenue (exempt from income tax) |
|
5,000 |
| Proceeds from sale of plant |
|
29,000 |
| |
|
|
| Expenses: |
|
|
| Administration expenses |
116,500 |
|
| Doubtful debts expense |
4,000 |
|
| Salaries |
270,200 |
|
| Rent |
26,000 |
|
| Annual leave |
13,500 |
|
| Entertainment expenses (not tax deductible) |
2,000 |
|
| Warranty expenses |
12,000 |
|
| Carrying amount of plant sold |
40,000 |
|
| Depreciation expense - plant |
14,000 |
|
| Depreciation expense - motor vehicles |
8,000 |
|
| Insurance |
10,400 |
(516,600) |
| Accounting profit before tax |
|
289,400 |
Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2015
| |
2015$ |
2014$ |
| Assets: |
|
|
| Cash |
196,500 |
7,000 |
| Inventory |
210,000 |
85,000 |
| Accounts receivable |
76,000 |
34,000 |
| Less Allowance for doubtful debts |
(8,600) |
(5,000) |
| Rent receivable |
2,000 |
3,000 |
| Prepaid insurance |
1,200 |
500 |
| Plant - cost |
70,000 |
120,000 |
| Less Accumulated depreciation |
(46,000) |
(42,000) |
| Motor vehicles - cost |
32,000 |
32,000 |
| Less Accumulated depreciation |
(20,500) |
(12,500) |
| Deferred tax asset |
? |
17,160 |
| |
|
|
| Liabilities: |
|
|
| Accounts payable |
17,300 |
12,800 |
| Provision for annual leave |
16,200 |
23,000 |
| Provision for warranties |
21,500 |
18,700 |
| Current tax liability |
? |
32,600 |
| Deferred tax liability |
? |
2,925 |
| Loan payable |
20,000 |
30,000 |
Additional information:
All administration, rent and salaries expenses incurred have been paid as at year end.
Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
Rent income is taxed when amounts are received, and not as amounts are accrued.
The company can claim a tax deduction of $10,500 for depreciation on plant, and $12,000 for depreciation on motor vehicles. Accumulated depreciation for tax purposes at 30 June 2014 was $31,500 for plant, and $18,750 for motor vehicles.
The plant sold during the year (sold on 1 July 2014) had been purchased for $50,000 on 1 July 2013. For taxation purposes, the plant was depreciated at 15% p.a.
The tax rate is 30%.
Required:
i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2015, in accordance with AASB 112.
ii) Prepare the journal entries to record the current tax liability and movement in the deferred tax assets and deferred tax liabilities.