Accounting

The financial accountant of Carlton Ltd has prepared draft financial statements for the year ended 30 June 2014 but is unsure about the tax calculations. Draft income statement for the year ended 30 June 2014 Revenue 10,000,000 Cost of sales -4,000,000 Gross profit 6,000,000 Other income Royalty income 243,000 Profit on sale of motor vehicle 68,000 Grant income 143,000 454,000 Expenses Depreciation – motor vehicles 315,000 Depreciation – Plant & equipment 172,000 Entertaining 18,650 Annual leave 152,000 Repairs 255,000 Bad and doubtful debts 203,000 Rent 264,000 Other expenses 3,000,000 4,379,650 Profit before tax for the year 2,074,350 Extracts from the draft statement of financial position as at 30 June 2014 2014 2013 Assets Cash 803,500 975,000 Accounts receivable 2,500,000 2,300,000 Less provision for doubtful debts 143,000 123,000 Inventory 2,600,000 2,150,000 Prepayments (rent) 34,750 40,100 Royalty income due 22,950 45,915 Deferred tax asset ? ? Motor vehicles 1,098,000 1,800,000 Plant & Equipment 1,033,110 1,205,295 Goodwill 370,000 373,500 Liabilities Accounts payable 1,980,000 1,800,000 Accrued annual leave 43,000 34,000 Provision for repairs 100,000 110,000 Bank loan 3,500,000 3,580,000 Current tax payable ? 48,000 Deferred tax liability ? ?

Trimester 1, 2014 4  |  P a g e

Required:

a) Prepare the current tax work sheet and journal entry/entries to calculate and record

the current tax for the year ended 30 June 2014 as per AASB 112 “Income

taxes”. (10 marks)

b) Justify your treatment of entertainment expense and exempt income in the current

tax work sheet. (5 marks)

c) Prepare deferred tax work sheet to calculate deferred tax asset and liability as at 30

June 2013 and 30 June 2014 and prepare journal entry as per AASB 112 “ Income

Taxes” for 30 June 2014 (create columns for account name, carrying amount, tax

base, deductible temporary difference and taxable temporary difference).

(15 marks)

Question  2

Evaluate  whether  deferred  tax  assets  and  deferred  tax  liabilities  arising  from  AASB

112  “  INCOME  TAXES”  meet  the  definition  and  recognition  criteria  outlined  in  the

conceptual  framework.                          (10  marks)

Additional information 1 The tax rate is: 30% 2 Grant income is exempt from tax 3 Entertaining expenses are not allowable deductions for tax 4

Excluding revenue and cost of sales other income and expenses are taxed on a cash basis 5 The carrying value and the tax base of the vehicle sold were: Carrying value 430,000 Tax base 344,000 6 Tax depreciation for the year was: Motor vehicles 400,000 Plant & Equipment 200,000 7 The tax base of the assets at the start of the current year were:

Motor vehicles 1,600,000 Plant & Equipment 1,060,000