ACCT2542 Tutorial Question with Solution
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ACCT2542
Tutorial Question with Solution
Calculation of current and deferred tax, and adjustment entry
Bondi Ltd’s accounting profit before tax for the year ended 30 June 2024 was $150 000. At 30 June 2023 and 30 June 2024, the company’s draft statements of financial position showed the following balances.
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Assets Cash Inventories Accounts receivable Allowance for doubtful debts Prepaid insurance Equipment Accumulated depreciation — equipment Buildings Accumulated depreciation — buildings Goodwill Deferred tax asset
Liabilities Accounts payable Accrued expenses Mortgage loan Warranty payable Current tax liability Deferred tax liability |
$ |
2023
40 000 150 000 300 000 (15 000) 20 000 200 000 (100 000) 400 000 (140 000) 40 000 45 000
255 000 120 000 210 000 70 000 9 000 12 000 |
$ |
2024
50 000 160 000 420 000 (21 500) 15 000 260 000 (146 000) 400 000 (160 000) 40 000 ?
270 000 90 000 210 000 50 000 ? ? |
Additional information
• The company tax rate is assumed to be 30%.
• During the year ended 30 June 2024, Bondi Ltd received a non-taxable royalty revenue of $20 000.
• Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. Bondi Ltd recognised $20 000 in bad debts expense during the year ended
30 June 2024.
• Insurance expense incurred during the year ended 30 June 2024 was $20 000. The amounts paid in cash for insurance are allowed to be claimed as deductions for tax purposes.
• The equipment is depreciated on a straight-line basis over 5 years for accounting
purposes and over 4 years for taxation purposes. The equipment is not expected to have any residual value. The only movement in the equipment account during the year ended
30 June 2024 was a result of Bondi Ltd acquiring a new equipment on 1 January 2024.
• The buildings are depreciated on a straight line basis over 20 years for accounting purposes and are not expected to have any residual value. Depreciation of buildings is not allowed to be claimed as a deduction for tax purposes. There is no movement in the Buildings account during the year ended 30 June 2024.
• During the year ended 30 June 2024, Bondi Ltd paid accrued expenses of $210 000 and recognised $45 000 in warranty expense. These expenses are not deductible for tax purposes until they are actually paid.
• There are no other items that cause differences between accounting and taxable profit.
• Goodwill is not considered deductible for tax purposes.
• Permanent differences do not result in deferred tax consequences.
• During the year ended 30 June 2024, Bondi Ltd paid the Australian Taxation Office the following instalments for income tax. Payments have to be made within one month after the end of the quarter they relate to:
1. 28 July 2023: $9 000
2. 28 October 2023: $7 000
3. 28 February 2024: $7 500
4. 28 April 2024: $8 000.
Required
1. Prepare the current tax worksheet and the journal entry to recognise current tax at 30 June 2024.
2. Prepare the deferred tax worksheet and journal entries to adjust deferred tax accounts.
1.
BONDI LTD
Current tax worksheet
for year ended 30 June 2024
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Accounting profit Add: Bad debts expense Insurance expense Depreciation expense – equipment Depreciation expense – buildings (non-deductible) Accrued expense Warranty expense
Deduct: Royalty revenue (tax exempt) Bad debts written off Insurance paid Depreciation – equipment (tax) Accrued expenses paid Warranty paid Taxable profit Tax payable @ 30% Less quarterly tax paid (from October 2023 to April 2024) Current tax liability |
$
20 000 20 000 46 000 20 000 180 000 45 000 |
$ 150 000
331 000 |
|
20 000 13 500 15 000 57 500 210 000 65 000 |
481 000
(381 000) |
|
|
|
100 000 |
|
|
30 000 (22 500) |
||
|
7 500 |
Workings:
Bad debts written off: opening balance of allowance for doubtful debts ($15 000) + bad debts expense ($20 000) – ending balance of allowance for doubtful debts ($21 500) = $13 500. Insurance paid: ending balance of prepaid insurance ($15 000) + insurance expense ($20 000) – opening balance of prepaid insurance ($20 000) = $15 000.
Depreciation of equipment for tax purposes: depreciation of old equipment ($200 000 / 4) + depreciation of new equipment acquired on 1 January 2024 ([$260 000 - $200 000] / 4 / 2) = $57
500.
Accrued expenses: ending balance of accrued expenses ($90 000) + accrued expenses paid ($210 000) – opening balance of accrued expenses ($120 000) = $180 000.
Warranty paid: opening balance of warranty payable ($70 000) + warranty expense ($45 000) – ending balance of warranty payable ($50 000) = $65 000.
Those amounts (excluding the depreciation of equipment for tax purposes) can also be calculated by recreating the ledgers for the affected accounts as follows:
Allowance for doubtful debts
$ 
Bad debts written 13 500 
Ending balance 21 500 
35 000 
|
Opening balance Expense |
20 000 35 000 |
Prepaid insurance
|
$ Opening balance 20 000 Insurance paid 15 000 35 000 |
Accrued expenses payable
|
$ Expenses paid 210 000 Ending balance 90 000 300 000 |
Warranty payable
|
$ Warranty paid 65 000 Ending balance 50 000 115 000 |
2022-07-12