Question

The profit before tax, as reported in the Statement of Profit or Loss and Other Comprehensive Income of Diamond Ltd for the year ended 30 June 2019, amounted to $50,000 including the following revenue and expense items.

	June 2019
	$
Interest revenue	4,000
Bad debts expense	4,000
Depreciation expense - plant	5,000
Annual Leave Expense	3,000
Long service leave expense	2,500
Fines and Penalties (non-deductible)	600
Depreciation expense - buildings (non-deductible)	1,000
Government grant (exempt from tax)	3,000

The Statement of Financial Position of the company at 30 June 2019 showed the following assets and liabilities.

	2019	2018
Assets	$	$
Cash	7,000	5,500
Accounts receivables	55,000	42,000
Allowance for doubtful debts	(6,500)	(3,000)
Inventory	17,000	15,500
Interest Receivable	3,000	6,000
Plant	70,000	70,000
Accumulated Depreciation - Plant	(36,000)	(31,000)
Buildings	40,000	40,000
Accumulated Depreciation – Buildings	(16,000)	(15,000)
Deferred Tax Asset	?	1,200
Liabilities
Accounts Payable	29,000	26,000
Provision for long service leave	7,000	4,500
Provision for annual leave	7,500	7,000
Deferred Tax Liability	?	2,500

Additional information

·        Accumulated depreciation of plant for tax purposes was $42,000 at 30 June 2019, and depreciation for tax purposes for the year ended 30 June 2019 amounted to $7,000.

·        The tax rate is 30%.

Required

1. Prepare the current tax worksheet and the journal entry to recognise current tax at 30 June 2019.
2. Prepare the deferred tax worksheet and journal entries to adjust deferred tax accounts as at 30 June 2019.

Answer 1

Q. Prepare the current tax worksheet and journal entry to recognise current tax at 30 June 2019.

Sol:

Current Tax Worksheet for the year                                ended 30 June, 2019
Accounting profit before tax		50000
Add
Entertaintment Exp.
Depreciation Exp. - Building	1000
Baddebt Exp	4000
Depreciation Exp. - Plant	5000
Long Service Leave expense	2500
Annual leave Expense	3000
Fines and penalty	600
	16100	66100
Deduct
Interest Revenue	4000
Govt. Grand received	3000
Tax depereciation	7000
	14000
Taxable income		52100
Current Tax Liability @ 30%		15630
Journal Entry to record Current Tax
Income Tax Expense	15630
Current tax Liability		14630
(Recognition of Current tax liability)