Tutorial 2

Before tutorial (Chapter 12)

Exercise 12.3. Calculation of current tax

Flaxton Ltd made an accounting profit before tax of $40 000 for the year ended 30 June 2021.
Included in the accounting profit were the following items of revenue and expense.
Donations to political parties (non-deductible) $ 5 000
Depreciation expense — machinery (20% p.a., straight-line) 15 000
Annual leave expense 5 600
Rent revenue 12 000
For tax purposes the following applied.
Depreciation rate — machinery 25%
Annual leave paid $   6 500
Rent received $ 10 000
Income tax rate 30%

Required

1. Calculate the current tax liability for the year ended 30 June 2021, and prepare the
adjusting journal entry.
Exercise 12.4. Calculation of current tax

Haden Ltd recorded an accounting profit before tax of $100 000 for the year ended 30 June
2022. Included in the accounting profit were the following items of revenue and expense.
Entertainment expenses (non-deductible) $ 2 000
Depreciation expense — vehicles (10% p.a., straight-line) 17 000
Rent revenue 2 500
For tax purposes the following applied:
Depreciation rate — vehicles 15%
Rent received $ 3 000
Income tax rate 30%

Required

1. Use a current tax worksheet to calculate the current tax liability for the year ended 30
June 2022. Prepare the adjusting journal entry.
Exercise 12.12. Calculation of current and deferred tax, and adjustment entry
Victory Ltd commences operations on 1 July 2020. One year later, on 30 June 2021, the
entity prepares its first statement of comprehensive income and its first statement of financial
position. The statements are prepared before considering taxation. The following information
is available.
Statement of comprehensive income
for the year ended 30 June 2021
Gross profit $ 500 000
Wages expense (200 000)
Long service leave expense (50 000)
Bad debts expense (20 000)
Rent expense (50 000)
Depreciation expense — machinery (30 000)
Accounting profit before tax 150 000
Assets and liabilities as disclosed in the statement of financial position
as at 30 June 2021
Assets
Cash $ 150 000
Inventories 200 000
Accounts receivables (net) 180 000
Prepaid rent 50 000
Machinery 150 000)
Accumulated depreciation — machinery (30 000
700 000
Liabilities
Accounts payable 100 000
Revenue received in advance 50 000
Loan payable 200 000
Provision for long service leave 50 000
400 000
Additional information
 The company tax rate is assumed to be 30%.
 All salaries have been paid as at year end and are deductible for tax purposes.
 None of the long service leave expense has actually been paid. It is not deductible for
tax purposes until it is actually paid.
 Rent was paid in advance on 1 July 2020. Actual amounts paid are allowed as a tax
deduction.
 Amounts received from sales, including those on credit terms, are taxed at the time
the sale is made. No bad debts were written off.
 The revenue received in advance is included in the taxable income.
 The machinery is depreciated on a straight-line basis over 5 years for accounting
purposes, but over 3 years for taxation purposes. The machinery is not expected to
have any residual value.
Required
1. Prepare the current tax worksheet and the journal entry to recognise current tax at 30
June 2021.
During tutorial
Exercise 12.15. Current and deferred tax
Kilcoy Ltd has determined its accounting profit before tax for the year ended 30 June 2020 to
be $256 700. Included in this profit are the items of revenue and expense shown below.
Royalty revenue (non-taxable) $ 8 000
Entertainment expense 1 700
Depreciation expense — buildings 7 600
Depreciation expense — plant 22 500
Doubtful debts expense 4 100
Annual leave expense 46 000
Insurance expense 4 200
Development expense 15 000
The accounting profit for Kilcoy Ltd for the year ended 30 June 2020 also included a gain on
sale of buildings of $5000.
The company’s draft statement of financial position at 30 June 2020 showed the following
assets and liabilities.
Assets
Cash $      2 500
Accounts receivable $ 21 500
Less: Allowance for doubtful debts  (4 100) 17 400
Inventories 31 600
Prepaid insurance 4 500
Land 75 000
Buildings 170 000
Less: Accumulated depreciation  (59 500) 110 500
Plant 150 000
Less: Accumulated depreciation (67 500) 82 500
Deferred tax asset (opening balance) 000000000 9 600
333 600
Liabilities
Accounts payable 25 000
Provision for annual leave 10 000
Deferred tax liability (opening balance) 6 000
Loan 140 000
$ 181 000
 
Additional information
 Quarterly income tax instalments paid during the year were as follows.
28 October 2019 $18 000
28 January 2020 17 500
28 April 2020 18 000
The final balance of tax payable was due on 28 July 2020.
 The tax depreciation rate for plant (which cost $150 000, 3 years before) is 20%.
 Depreciation on buildings is not deductible for taxation purposes. The gain on sale of
buildings of $5000 (see above) was recognised on buildings sold on 1 January 2020
that had cost $100 000 when acquired on 1 January 2014. The company depreciates
 buildings for accounting purposes at 5% p.a., straight-line. Any gain (loss) on sale of
buildings is not taxable (not deductible).
 During the year, the following cash amounts were paid.
Annual leave $52 000
Insurance 3 700
 Bad debts of $3500 were written off against the allowance for doubtful debts during
the year.
 The $15 000 spent (and expensed) on development during the year is not deductible
for tax purposes until 30 June 2021.
 Kilcoy Ltd has tax losses amounting to $12 500 carried forward from prior years.
 The company tax rate is 30%.

Required

1. Prepare the current tax worksheet and the journal entry to recognise current tax at 30
June 2020.