Corporate Reporting (ACC2CRE)
Case Study (5 Marks)
Accounting for Income Tax
Group Assignment
The accounting profit before tax for the year ended 30 June 2016 for Alex Ltd
amounted to $18 500 and included:
Depreciation — motor vehicle (25%) | $ 4 500 |
Depreciation — equipment (20%) | 20 000 |
Rent revenue | 16 000 |
Royalty revenue (non-taxable) | 5 000 |
Doubtful debts expense | 2 300 |
Entertainment expense (non-deductible) | 1 500 |
Proceeds on sale of equipment | 19 000 |
Carrying amount of equipment sold | 18 000 |
Annual leave expense | 5 000 |
The draft statement of financial position at 30 June 2016 contained the following assets and
liabilities
|
2016 | 2015 |
Assets | ||
Cash | $ 11 500 | $ 9 500 |
Receivables | 12 000 | 14 000 |
Allowance for doubtful debts | (3 000) | (2 500) |
Inventories | 19 000 | 21 500 |
Rent receivable | 2 800 | 2 400 |
Motor vehicle | 18 000 | 18 000 |
Accumulated depreciation — motor vehicle | (15 750) | (11 250) |
Equipment | 100 000 | 130 000 |
Accumulated depreciation — equipment | (60 000) | (52 000) |
Deferred tax asset | ? | 6 450 |
136 100 | ||
Liabilities | ||
Accounts payable | 15 655 | 21 500 |
Provision for annual leave | 4 500 | 6 000 |
Current tax liability | ? | 7 600 |
Deferred tax liability | ? | 2 745 |
37 845 |
Additional information
(a)
The company can claim a deduction of $15 000 (15%) for depreciation on equipment, but the motor vehicle is fully depreciated for tax purposes
(b)
The equipment sold during the year had been purchased for $30 000 2 years before the date of sale
(c)
The company tax rate is 30%
Required
1Prepare the current tax worksheet and
the journal entry to recognise the current tax as at 30 June 2016
2Prepare the deferred tax worksheet and
any necessary journal entries to adjust deferred tax accounts