Geelong Ltd began operations on 1 July 2014. One year
after operations, the entity presents its first Statement of Comprehensive
Income and Statement of Financial Position on 30 June 2015. However, the
statements were prepared for internal purposes but income tax calculations were
ignored. Accounting profit before income tax for the year 30 June 2015 of Geelong
Ltd amounted to $12,410,000, including the following revenue and expenses.
Income
$
Sales Revenue
21,500,000
Expenses
Cost of goods sold
6,100,000
Salaries
820,000
Wages
170,000
Rent of premises
56,000
Administrative expenses
492,200
Entertainment costs
36,000
Doubtful debts
50,000
Long service leave
308,000
Warranty expenses
163,200
Insurance
125,600
Depreciation expense – Plant and
Equipment
335,000
Depreciation expense âVehicles
324,000
Depreciation expense â Buildings
110,000
Profit before Income Tax
12,410,000
Geelong Ltd
Assets and Liabilities disclosed in the Statement of
Financial Position for the year ended 30 June 2015
$
$
Assets
Cash/ Bank
85,000
Accounts
Receivables (net)
346,000
Inventory
464,800
Prepaid
insurance
43,600
Plants &Equipments
â cost
4,020,000
Less –
Accumulated depreciation
335,000
3,685,000
Vehicles- cost
1,296,000
Less –
Accumulated depreciation
324,000
972,000
Buildings-
cost
1,650,000
Less –
Accumulated depreciation
110,000
1,540,000
Land
2,250,000
Total assets
9,386,400
Liabilities
Accounts
payables
851,200
Rent payable
38,000
Provision for
warranty expenses
120,200
Provision for
long service leave
119,000
Loan payable
1,658,000
Total liabilities
2,786,400
Net assets
6,600,000
Additional information:
The plants & equipments are
depreciated over 12 years for accounting purposes, but over 10 years for
taxation purposes. The useful life of vehicles is 3 years for the tax
purposes and 4 years for accounting purposes. Therefore, there is a temporary
difference between accounting and taxation depreciation for plants&
equipments, and computers.
Geelong Ltd has some land which cost
$1,630,000 and has been re-valued to its fair value of $2,250,000.
All administration, salaries and
wages expenses incurred have been paid as at year-end.
Total
bad debts written off for the year were $30,000.
The amount of $189,000
long service leave expense has been paid.
Amounts received from sales,
including those on credit terms, are taxed at the time of the sale is
made.
Warranty expenses were accrued and,
at the year-end, actual payments of $43,000
has been made (leaving an accrued balance of $120,200). Deductions for tax
purposes are only available when the amounts are paid and not as they
accrued.
Insurance was initially prepaid to
the amount of $169,200. At the year-end, the unused component of the prepaid
insurance amounted to $43,600. Actual amounts paid are allowed as a tax
deduction.
Entertainment expenses and
depreciation of buildings are not allowed as deductions for income tax.
The tax rate is 30 per cent.
Required:
(i)
Compute the taxable income or
loss.
(ii)
Complete the Taxation Worksheet
on the next page in accordance with AASB 112 Income Taxes.
(iii)
Prepare the applicable journal
entries at 30 June 2015 to account for tax using the balance sheet method.
Item
Carrying
amount
$
Tax Base
$
Deductable
Temporary
Difference
$
Taxable
Temporary Difference
$
Tax Expense
$
Revaluation
Surplus
$
Tax Payable
$
Assets
Cash/ Bank
Receivables
(net)
Prepaid
insurance
Inventory
Property
& Plant â net
Vehicles â
net
Buildings â
net
Land
Liabilities
Accounts
payables
Rent
payable
Provision
for long service leave
Provision
for warranty
Loan
payable
Net assets
Temporary
difference for year
Loss
carried forward
Movement
for the period
Tax
effected at 30%
Taxable
income $6,332,200@30%)
Income tax adjustment
Geelong Ltd
Taxation Worksheet as at 30 June 2015
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