Question

The profit before tax, as reported in the statement of profit and loss for Aileen Ltd for the year ended 30 June 2020, amounted to $150,000, including the following revenue and expense items:

Revenues

Sales revenue $600,000

Interest revenue 60,000

Government grant 40,000

Expenses

Cost of goods sold 300,000

Bad debts expense 8,000

Depreciation expense – equipment 6,000

Depreciation expense – plant 25,000

Research and development expense 51,000

Wages expense 120,000

Long service leave expense 40,000

The draft statement of financial position of Aileen Ltd at 30 June 2020 and the statement from last year showed the following assets and liabilities:

2019 2020

Assets

Cash $30,000 $30,000

Inventory 100,000 150,000

Accounts receivable 50,000 70,000

Allowance for doubtful debts (5,000) (10,000)

Interest receivable 25,000 20,000

Equipment—cost 30,000 30,000

Accumulated depreciation-equipment (12,000) (18,000)

Plant—cost 500,000 500,000

Accumulated depreciation-plant (50,000) (75,000)

Goodwill 15,000 15,000

Deferred tax asset 33,000, ?

Liabilities

Accounts payable 60,000 40,000

Wages payable 50,000 80,000

Revenue received in advance - , 40,000

Loan payable 200,000 100,000

Provision for long-service leave 40,000 30,000

Deferred tax liability 18,730, ?

Additional information:

In the year ended 30 June 2019, Aileen Ltd had a tax loss of $70,000 that it carried over in the deferred tax asset. In June 2020, the company received an amended assessment for the year ended 30 June 2020 from the ATO, indicating that an amount of $10,000 claimed as a deduction has been disallowed. Aileen Ltd has not yet adjusted its accounts to reflect the amendment. The remaining losses can be used to offset taxable incomes in future periods.

Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. All other general taxation rules apply.

The depreciation regimes for the financial reports and the company income tax return respectively, are listed below.

Depreciation Regimes Equipment Plant Depreciation rate:

Depreciation rate:
Accounting	20%	20 years
Tax	30%	10 years
Method:
Accounting	Straight line	Straight line
Tax	Reducing balance	Straight line
Residual:	Zero	Zero

All research and development expenses were paid in cash during the year ended 30 June 2020. A tax deduction for development costs of 120% of the $51,000 spent during the year is available

All movements of deferred tax accounts during the year are not yet recongised.

The company tax rate applicable is 30%.

REQUIRED: (a) Determine the taxable profit for the year ended 30 June 2020. Start from the accounting profit before tax and show the adjustments for differences between taxation and accounting rules.

(b) Complete the worksheet on the additional page provided to determine the movements in the deferred tax accounts for the year ended 30 June 2020.

(c) Prepare the journal entries to recognise the current tax liability and the final deferred tax adjustments for the year ended 30 June 2020 including the movement during the year due to carry-forward tax loss. Note Aileen Ltd does not set off the deferred tax accounts against each other.

Answer 1