Question

Skylar Ltd commenced operations on 1 July 2016. It disclosed a net profit before tax of $90,000 for the year ended 30 June 2017.

This profit was determined after charging the following items:

Impairment loss- goodwill                                                           $4,000

Depreciation of Plant & Equipment                                           $15,000

Depreciation of motor vehicles                                                  $5,000

Doubtful Debts                                                                               $5,000

Increase in Provision for Employee Entitlements                 $12,000

On 30 June 2017, the accounting and taxation records disclosed the following:

	Carrying Amount		Tax Base
ASSETS Plant & Equipment Accumulated Dep’n: Motor Vehicles Accumulated Dep’n: Cash Accounts-Receivable (Net) LIABILITIES Accounts-Payable Prov’n for Employee Entitlements NET ASSETS	60,000 -15,000 30,000 -5,000	45,000 25,000 20,000 85,000 175,000 50,000 42,000 92,000 83,000	60,000 -20,000 30,000 -7,500	40,000 22,500 20,000 90,000 172,500 50,000 30,000 80,000 92,500

Additional information:

The plant and equipment, which cost 60,000 was purchased on 1 July 2016 and is being depreciated at 25% for accounting purposes and at 33-1/3% for tax purpose.

The doubtful debts are not allowed for tax purposes.

There were no employee entitlements taken during the 2017 financial year.

The motor vehicle, which was purchased on 1 July 2017 and cost $30,000 is depreciated over 6 years for accounting purposes and over 4 years for tax purposes. Assume straight line depreciation with NIL salvage value.

Impairment loss for goodwill is not allowable as a tax deduction.

Required tasks (Use Excel spreadsheet to display your answer):

Prepare a statement of taxable income for the year ended 30 June 2017.

Calculate Deductible temporary differences

Calculate Taxable temporary differences

Prepare journal entries for income tax expense in accordance with AASB112. (The rate of company tax is 30%)

Answer 1

	Statement of taxable income for the year ended 30 June 2017
	Net profit before tax						$    90,000.00
ADD:	Impairment of goodwill					$    4,000.00
	Doubtful Debts					$    5,000.00
	Increase in Provision for Employee Entitlements					$ 12,000.00
	Depreciation of Plant & Equipment as per Accounts					$ 15,000.00
	Depreciation of Motor vehicles as per Accounts					$    5,000.00	$    41,000.00
LESS:	Depreciation of Plant & Equipment as per tax					$ 20,000.00
	Depreciation of Motor vehicles as per tax					$    7,500.00	$    27,500.00
	Taxable Income						$ 103,500.00

Calculation of Temporary Differences

			Carrying Amount	Tax Base	Difference
Assets:
Plant & Equipments			$            45,000.00	$ 40,000.00	$      5,000.00
Motor Vehicles			$            25,000.00	$ 22,500.00	$      2,500.00
Account Receivable			$            85,000.00	$ 90,000.00	$      5,000.00
Liabilities:
Doubtful Debts			$            42,000.00	$ 30,000.00	$   12,000.00
Employee Entitlements			$            92,000.00	$ 80,000.00	$   12,000.00
Deferred Tax Liabilities					$ (21,500.00)

Journal Entries

Income tax expense ($103,500 * 0.3)						$ 31,050.00
Tax payable							$ 31,050.00
Income tax expense ($21,500 * 0.3)						$    6,450.00
Deffered Tax Liabilities							$    6,450.00