Question

Before considering question 2 and 3, the accounting profit and taxable income of Ivy Ltd for the financial year ended 30 June 2019 was $600,000.

a) Ivy Ltd acquired property, plant and equipment (PP&E) on 1 July 2018 for $1,000,000. It is depreciated at 20% per annum straight-line with no residual value for accounting purposes and 25% per annum straight-line with no residual value for tax purposes.

b) The balance of ‘Accounts receivable’ on 30 June 2019 was $180,000. The allowance for doubtful debts had a credit balance of $17,000 on 1 July 2018. For the 2019 financial year, bad debts expense was $24,000; bad debts written-off and claimed for tax purposes were $21,000. The amount recognised in the accounts receivable is taxed at the moment of the sale being made.

c) Ivy Ltd incurred development costs of $10,000. These costs did not meet the conditions for capitalisation in AASB 138 and were recognised as expenses. For tax purposes, 125% of the development costs are an allowable deduction in the year the costs were incurred.

d) Actual payments of warranty expense of $5,000 were made during the year. The closing balance of ‘Provision for warranty’ on 30 June 2019 was $15,000. Tax deductions for warranty are available only when the amounts are paid.

e) Ivy Ltd incurred a late lodgement penalty from the Australian Taxation Office of $8,000 on 15 June 2019. Ivy Ltd cannot claim a tax deduction on this penalty.

Required:
Calculate the taxable income for the year 30 June 2019. Prepare the journal entry for current income tax expense. Show all calculations. [6 marks]

Answer 1

	Accounting Profit	600000			Taxable Income	600000	Deductible / Liability	Difference
Less:				Less:
(a)	Dep @ 20 %	200000		(a)	Dep @ 25%	250000	DTL	50000
(b)	Bad Debt Charged to books	24000		(b)	Bad Debt allowed	21000	DTA	-3000
('c)	Development Cost	10000		('c)	Development cost @ 1.25	12500	NO Treatment	0
(d)	Warannty Expenses	15000		(d)	Warranty Expenses Paid	5000	DTA	-10000
('e)	Penalty of Case	8000		('e)	Penalty of Case	0	NO Treatment	0
	Book Profits	343000			Taxable Profit	311500
								Here, 37000 will be charged as Defferred tax liability
Current Tax	Charged on 311500
DTL		37000
Total will be charged as Tax Expenses for the period.
Journal Entry
	Income Tax Expenses A/c Dr.	Dr.
	Deferred Tax Expenses A/c Dr.	Dr.
	To Provision for Income Tax	Cr.
	To Provison for Deffered Tax	Cr.