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Question: thor ltds profit before tax for the year ended 30...

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Thor Ltd’s profit before tax for the year ended 30 June 2020 was $240,200. Included in this profit are the following items of income and expense:

Amortisation of development costs

$16,000

Carrying amount of equipment sold

22,000

Depreciation – building (5%)

9,500

Depreciation – plant (15%)

13,500

Doubtful debts expense

4,000

Employee benefits expense

12,000

Entertainment expense

7,200

Fines and penalties

5,400

Insurance expense

6,200

A process on sale if the equipment

19,000

Rent revenue

32,000

Royalty revenue (exempt income)

4,400

Warranty expense

8,500

Unearned revenue

8,700

 

 

At 30 June, the company’s draft statements of financial position showed the following balances:

 

2020

2021

Assets

 

 

Cash

$27,400

$14,600

Accounts Receivables

22,000

23,000

Allowance for doubtful debts

(4,000)

(3,500)

Inventories

27,000

29,500

Prepaid Insurance

14,000

12,300

Rent Receivable

22,000

25,000

Development Cost

80,000

-

Accumulated amortisation

(16,000)

-

Plant

90,000

130,000

Accumulated depreciation

(54,000)

(58,500)

Building

190,000

190,000

Accumulated depreciation

(38,000)

(28,500)

Deferred tax asset

?

18,000

Goodwill

11,000

11,000

 

 

2020

2021

Liabilities

 

 

Accounts Payable

$33,000

$31,200

Current tax liabilities

?

7,600

Deferred tax liability

?

17,040

Provision for employee benefits

22,500

16,000

Provision for warranties

4,500

8,000

Loan payable

220,000

190,000

Revenue received in advance.

8,700

-

 

  1. The tax rate is 30%.

  2. A tax deduction for development costs on 125% of the amount spent during the year is available for tax purposes. The profit reflects the amount of development costs amortised in the current period.

  3. A tax deduction of $18,000 (20%) can be claimed on the plant.

  4. The plant sold on 1 July 2019 cost $40,000 when it was purchased 3 years before the date of sale.

  5. Deductions are only available for annual leave when amounts are paid and not as they are accrued.

  6. Actual amounts paid for insurance are allowed as a tax deduction.

  7. No deduction is allowed for taxation purposes in relation to entertainment, fines, and penalties.

  8. Rent revenue is taxable when amounts are received.

  9. Depreciation of buildings is not allowed as a tax deduction.

  10. The deferred tax asset (DTA) balance at 30 June 2019 comprised:
    i) DTAs relating to temporary differences: $8,250
    ii) DTAs relating to carried forward tax losses: $9,750

No journal entries related to deferred tax have been recorded for the year ended 2020. Assume the tax balances at 30 June 2019 are correct.

 

Required:

  1. Prepare the current tax worksheet to calculate the current tax liability for the year ended 30 June 2020 (show all working).

  2. Prepare the deferred tax worksheet to calculate the deferred tax asset and liability balances and adjustments for the year ended 30 June 2020.
    Include all accounts and net balances where appropriate.

  3. Prepare the journal entries to recognise the current tax liability, deferred tax assets, and liabilities at 30 June 2020.

 

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