Question

The profit before tax, as reported in the statement of profit or loss and other comprehensive income of Andreas Ltd for the year ended 30 June 2020, amounted to $85 000, including the following revenue and expense items:

Rent revenue	$4 500
Bad debts expense	6 000
Depreciation of plant	5 000
Annual leave expense Long service leave expense	2 500 3 500
Entertainment costs (non-deductible)	2 800
Depreciation of buildings (non-deductible)	800
Fines and penalties (non-deductible)	1 500

The statement of financial position of the company at 30 June 2020 showed the following net assets.

	2020	2019
Assets
Cash	12 000	9 500
Inventories	17 000	15 500
Receivables	50 000	48 000
Allowance for doubtful debts	(6 500)	(4 000)
Office supplies	2 500	2 200
Plant	50 000	50 000
Accumulated depreciation	(26 000)	(21 000)
Buildings	30 000	30 000
Accumulated depreciation	(14 800)	(14 000)
Goodwill (net)	7 000	7 000
Deferred tax asset	?	4 050
Liabilities
Accounts payable	29 000	26 000
Provision for long service leave	7 000	4 500
Provision for annual leave	5 000	3 000
Rent received in advance	3 500	2 000
Deferred tax liability	?	3 150

Additional information

(a) Accumulated depreciation of plant for tax purposes was $30 000 at 30 June 2019, and depreciation for tax purposes for the year ended 30 June 2020 amounted to $ 6 500.

(b) The tax rate is 30%.

Required(show all workings):

Prepare a current tax worksheet and the journal entry to recognise the company’s current tax liability as at 30 June 2020.

Answer 1

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Note:- Positive amount means added back to income as not allowable as per tax laws, negative amount means deducted from income as per the applicable tax laws.

The amounts allowable as per tax laws are shown in bold and have been worked out by preparing the relevant ledger accounts as follows:-

The entry to recognise current tax is:

Income tax expense (current) Dr 29 130

Current tax liability Cr 29 130

Note:- Due to lack of information about tax bases, details of opening deferred tax balances, deferred tax/liabilities cannot be worked out from the given information.