Question

The accounting profit before tax of Subang Ltd for the year ended 30 June 2020 was $320,000.

It included the following revenue and expense items:

Legal expenses 62 500

Interest expense 10 000

Bad debt expense 15 000

Depreciation expense – Plant & equipment 26 250

Entertainment Expense 2 500 Audit fee 40 000 Interest revenue 15 000 Rent revenue 10 000 Exempt income 37 500 Additional information: 1. Interest receivable at 30 June 2020 is $12,500 (2019: $15,000). Interest payable at 30 June 2020 is $500 (2019: $3,000). Interest is assessable on receipt and deductible when paid. 2. The company raised an accrual liability of $17 500 for audit work performed and not paid by 30 June 2020 (2019: $15,000). Fees for audit work are not deductible unless the audit work has been performed and paid. 3. Rent revenue relates to a contract where the annual rent is received in advance. The unearned revenue liability at 30 June 2020 is $10,000 (2019: $7,500). Rent is assessable when received. 4. Legal expenses include $25,000 related to capital transactions that are not deductible. 5. The bad debts expense relates to an account that has been written off. 6. Plant and equipment is as follows: 30 June 2020 30 June 2019 Plant & Equipment $175 000 $75 000 Accumulated depreciation 48 750 22 500 126 250 52 500 Question 1 is continued on the next page ACCY200 (MT) / Page 4 of 6 Question 1 continued 7. Tax depreciation for 30 June 2020 is $35,000. The tax written down value of plant and equipment at 30 June 2020 is $110,000 (2019: $45,000). 8. The deferred tax balances at 30 June 2019 are; deferred tax liability $6,750 and deferred tax asset $12,300. 9. The company tax rate is 30%. Required: a) Prepare the current tax worksheet and the journal entry to recognise the current tax as at 30 June 2020. b) Prepare the deferred tax worksheet and any necessary journal entries to adjust deferred tax accounts for 30 June 2020.

Answer 1

a)

Current Tax Worksheet as at 30th June 2020
Accounting Profit before Tax		$3,20,000
Add: Items disallowed / taxable in current year
Interest Expense debited to books	$10,000
Interest Income taxable (15000+15000-12500)	$17,500
Audit Fees taxable accrued not paid of current year	$17,500
Rent Income taxable (15000+15000-12500)	$7,500
Legal Expenses disallowed	$25,000
Depreciation as per books of Accounts	$26,250
		$1,03,750
Less: Items Allowable / taxable in future years
Interest Expense allowable (3000+10000-500)	$12,500
Interest Income credited to books	$15,000
Audit Fees taxable accrued not paid of last year	$15,000
Rent Income credited to books	$10,000
Tax Depreciation	$35,000
Exempt Income	$37,500	$1,25,000
Taxable Income as at 30th June 2020		$2,98,750
Tax @ 30%		$89,625
Journal Entry for Current Tax
Profit & Loss A/c…. Dr	$89,625
To Provision for Income tax		$89,625
Note : It is assumed Bad Debts & Entertainment expenses are deductible under Income Tax

b)

Deferred Tax Sheet Worksheet as at 30th June 2020
Deferred Tax Liabilities as on 30th June 2019		$6,750
WDV as per Accounts	$1,26,250
WDV as per Tax	$1,10,000
Excess of Tax Depreciation Allowed	$16,250
Incomes not taxed in Current Year & Taxable in future years
Interest Income	$15,000
Rent Income	$10,000
Excess of Tax Depreciation Allowed	$16,250
	$41,250
Less: Incomes not taxed in Earlier Years & Taxable in current year
Interest Income	$17,500
Rent Income	$7,500
	$25,000
Net Change in Deferred Income	$16,250
Change in Deferred Tax Liability @ 30%	$4,875
Deferred Tax Liabilities as on 30th June 2020		$11,625
Deferred Tax Asset as on 30th June 2019		$12,300
Expenses disallowed in Current Year & deductible in future years
Interest Expenses	$10,000
Audit Fees	$17,500
	$27,500
Less: Expenses disallowed in Earlier Years & deductible in current year
Interest Expenses	$12,500
Audit Fees	$15,000
	$27,500
Net Change in Deferred Income	$0
Change in Deferred Tax Asset @ 30%	$0
Deferred Tax Assets as on 30th June 2020		$12,300
Journal Entry for Deferred Tax
Profit & Loss A/c…. Dr	$4,875
To Deferred Tax Liability		$4,875
Note :
1) It is assumed Bad Debts & Entertainment expenses are deductible under Income Tax
2) Legal Expenses & Exempt Income are not considered for Deferred Tax Calaculation as it is permanent difference