Question

Q2

You have been asked by the management of Mok Ltd to assist with the preparation of the income tax entries for the year ended 30 June 2018. The company reported a profit before tax for the year to 30 June 2018 of $900 000. The company’s statements of financial position include assets and liabilities as follows:

	2018	2017
Accounts receivable	$ 245 000	$ 200 000
Allowance for doubtful debts	(20 000)	(10 000)
Plant – at cost	600 000	600 000
Accumulated depreciation	(190 000)	(120 000)
Development asset – at cost	360 000	200 000
Accumulated amortisation	(130 000)	(80 000)
Interest receivable	10 000	20 000
Provision for long-service leave	48 000	62 000
Deferred tax asset	?	21 600
Deferred tax liability	?	60 000

(a) The company is entitled to claim a tax deduction of 125% on development costs when incurred.

(b) Interest revenue of $10 000 is included in the profit for the year to 30 June 2018.

(c) Expenses included in profit for the year to 30 June 2018 are as follows:

   parking and other fines $10 000

   depreciation expense for plant $70 000

   doubtful debts expense $25 000

   amortisation of development asset $50 000

   long-service leave expense $36 000.

(d) Accumulated depreciation on plant for tax purposes is $280 000 on 30 June 2018 and $180 000 on 30 June 2017. There have been no acquisitions or disposals of plant during the current year.

(e) The corporate tax rate is 30%.

Required

Complete the current tax and deferred tax worksheets of Mok Ltd and prepare the tax entries for 30 June 2018.

Answer 1

Part 1

Current Tax Worksheet

For the year ended 30 June 2018

Accounting profit		900000
Add:
Parking and other fines	10000
Depreciation expense – plant	70000
Doubtful debts expense	25000
Amortisation – development asset	50000
Long service leave expense	36000
Interest received (20000+10000-10000)	20000	211000
Less:
Tax depreciation – plant (280000-180000)	100000
Bad debts written off (360000-200000)	160000
Development costs paid (10000+25000-20000)	15000
Additional deduction for development costs (360000-200000)*25%	40000
Long service leave paid (62000+36000-48000)	50000
Interest revenue	10000	375000
Taxable profit		736000
Current tax liability @ 30% (736000*30%)		220800

Part 2

Journal entry for current tax for the year to 30 June 2018

No.	Account titles and explanation	Debit	Credit
1	Income Tax Expense	220800
	Current Tax Liability		220800

Part 3

Deferred tax worksheet as at 30 June 2018

	Carrying Amount	Future Deductible Amount	Tax Base		Taxable Temporary Differences	Deductible Temporary Differences
Assets
Accounts receivable (net) (245000-20000)	225000	0	245000			20000
Plant (net) (600000-190000=410000); (600000-280000=320000)	410000	320000	320000		90000
Development asset (net) (360000-130000)	230000	0	0		230000
Interest receivable	10000	0	0		10000
Liabilities
Provision for LSL	48000	48000	0			48000
Total Temporary Differences					330000	68000
Deferred tax liability 30%					99000
Deferred tax asset 30%						20400
Beginning balances					60000	21600
Increase/(Decrease)					39000	(1200)

Part 4

Journal entry for deferred tax for the year to 30 June 2018

No.	Account titles and explanation	Debit	Credit
1	Income Tax Expense	40200
	Deferred Tax Liability		39000
	Deferred Tax Asset		1200