| Student ID | |||||||
| Input student ID here: | 218447526 | Background Information: | |||||
| As reported in the statement of comprehensive income of Wonderland Ltd (a manufacture company) for the year ended 30 June 2019: | |||||||
| The profit before tax amounted to: | $12,570,000 | ||||||
| and included the following revenue and expense items: | |||||||
| Rent revenue | $392,000 | ||||||
| Government grant received | $707,000 | ||||||
| Doubtful debts expense | $78,000 | ||||||
| Depreciation (Plant) | $510,600 | ||||||
| Depreciation (Buildings) | $125,000 | ||||||
| Warranty expense | $353,000 | ||||||
| Annual leave expense | $235,000 | ||||||
| Insurance expense | $117,000 | ||||||
| Entertainment expense | $196,400 | ||||||
| The draft statements of financial position of the company at 30 June 2019 and 2018 showed the following assets and liabilities: | |||||||
| 2019 ($) | 2018 ($) | ||||||
| Assets | |||||||
| Cash | $824,000 | $903,000 | |||||
| Inventory | $1,767,000 | $1,610,000 | |||||
| Accounts receivable | $5,106,000 | $4,870,000 | |||||
| Allowance for doubtful debts | -$408,000 | -$377,000 | |||||
| Prepaid insurance policy | $219,000 | $204,000 | |||||
| Plant | $5,106,000 | $5,106,000 | |||||
| Accumulated depreciation – Plant | -$2,042,400 | -$1,531,800 | |||||
| Buildings | $3,142,000 | $3,142,000 | |||||
| Accumulated depreciation – Buildings | -$1,257,000 | -$1,131,000 | |||||
| Land | $1,964,000 | $1,964,000 | |||||
| Goodwill (net) | $785,000 | $785,000 | |||||
| Deferred Tax Asset | ? | $116,430 | |||||
| Liabilities | |||||||
| Accounts payable | $2,985,000 | $2,671,000 | |||||
| Provision for warranty | $628,000 | $471,000 | |||||
| Annual leave payable | $432,000 | $314,000 | |||||
| Rent received in advance | $274,000 | $196,000 | |||||
| Deferred Tax Liability | ? | $0 | |||||
| Additional Information: | |||||||
| ▪ | Rent revenue is tax assessable when it is received in cash | ||||||
| ▪ | Government grant is not tax assessable | DTA? | |||||
| ▪ | Doubtful debts are tax deductible when the company actually incurs bad debts/write offs | Only taxable when written off | |||||
| ▪ | For accounting purposes, plant is depreciated using the straight line method at a rate of: | 10% | per annum | ||||
| ▪ | For tax purposes, however, plant is depreciated at a rate of: | Diff b/w acc income and taxable income | 15% | per annum | |||
| ▪ | Depreciation of buildings and entertainment expense are not allowed as tax deductions | ||||||
| ▪ | Employee entitlements including annual leave are tax deductible when they are paid in cash to the employees | DTA | |||||
| ▪ | Insurance expense is tax deductible when it is paid in cash | DTA | |||||
| ▪ | Warranty expense is tax deductible when it is paid in cash | DTA | |||||
| ▪ | Aggregated turnover for the years ended 30 June 2018 and 2019 is in excess of $25 million and it is expected that turnover will exceed $50 million in the year ended 30 June 2020 | ||||||
| Required: | |||||||
| a) | Using Sheet 2 (“Calculating Taxable income”), calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30th June 2019. Prepare a journal entry to recognise the current tax liability/tax loss. (18 marks) | ||||||
| b) | Using Sheet 3 (“Calculating DTA_DTL 2019”), calculate the Deferred Tax Asset and Deferred Tax Liability balances as at 30th June 2019 – show all relevant workings. Prepare the deferred tax journal entry for the year ended 30th June 2019. Note that you are NOT required to prepare a journal entry to offset the Deferred Tax Asset and Deferred Tax Liability balances. (23 marks) | ||||||
| c) | Assume that by 1 December 2019 there was a change in tax rate | from: | 30% | ||||
| to: | 27.50% | ||||||
| Using Sheet 4 (“Change in Tax Rate”) briefly discuss the accounting treatment under accounting standard AASB112 “Income Taxes” for the Deferred Tax Asset and Deferred Tax Liability balances as at 1 December 2019 given that the company may now be in a lower tax threshold for the 2019-2020 financial year (maximum 100 words in the space provided). | |||||||
| Should you believe an accounting change is necessary, prepare the journal entry to record the effect of the change in tax rate. (9 marks) | |||||||
| Note that the opening balances of DTA and DTL for the year ended 30 June 2020 are the closing balances for the year ended 30 June 2019 from part (b) | |||||||
| NOTES: | In each of the four sheets, you can only enter data (text or numbers) in cells shaded in yellow. | ||||||
| All marks will be awarded to numbers only, except for the discussion in Part (c). | |||||||
