Financial statement presentation, accounting for income tax, statement of cash flows
The trial balance of Dress to Impress Ltd, a new clothing retailer in Sydney (commenced operations on 1 July 2017), includes the following accounts at 30 June 2018:
| DR ($) | CR ($) | |
| Sales revenue | 4,278,000 | |
| Interest income | 19,000 | |
| Cost of goods sold | 2,620,000 | |
| Advertising | 230,000 | |
| Annual leave | 28,000 | |
| Depreciation – administration office equipment | 8,000 | |
| Depreciation – shop fittings | 23,000 | |
| Doubtful debts expense | 13,000 | |
| Electricity | 26,000 | |
| Insurance | 28,000 | |
| DR ($) | CR ($) | |
| Interest expense | 4,000 | |
| Long service leave | 8,000 | |
| Rent | 240,000 | |
| Salaries | 518,000 | |
| Sundry expenses | 74,000 | |
| Income tax expense | ? | |
| Cash on hand | 196,000 | |
| Accounts receivable | 153,000 | |
| Allowance for doubtful debts | 11,000 | |
| Inventories | 398,000 | |
| Prepaid insurance | 14,500 | |
| Deferred tax assets | ? | |
| Administration office equipment – at cost | 56,000 | |
| Accumulated depreciation – office equipment | 8,000 | |
| Shop fittings – at cost | 210,000 | |
| Accumulated depreciation – shop fittings | 23,000 | |
| Accounts payable | 62,000 | |
| Current tax liability | ? | |
| Bank loan | 15,500 | |
| Provision for annual leave | 23,000 | |
| Provision for long service leave | 8,000 | |
| Deferred tax liability | ? | |
| Share capital – ordinary fully paid shares | 400,000 |
Additional information:
- The provision for annual leave includes $21,000 payable within 1 year.
- The provision for long service leave and bank loan are non-current liabilities.
- Dress to Impress Ltd is a reporting entity.
- Dress to Impress Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by nature on the statement.
- In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.
- Advertising, electricity, rent, salaries and sundry expenses are paid as incurred.
Whilst reviewing the draft trial balance, you notice that income tax has not been recognised as yet. The following information is available to assist you in accounting for income tax:
- The company purchased administration office equipment at a cost of $56,000 on 1 July 2017. The equipment is depreciated over seven years for accounting purposes, and five years for taxation purposes (using the straight-line basis of depreciation, and a residual value of nil for both accounting and tax purposes).
- The company purchased shop fittings at a cost of $210,000 on 1 July 2017. The shop fittings are depreciated over nine years for accounting purposes, and twelve years for taxation purposes (using the straight-line basis of depreciation, and a residual value of $3,000 for both accounting and tax purposes).
- Tax deductions for annual leave, long service leave, and insurance are available when the amounts are paid, and not as amounts are accrued.
- Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.
- Tax deductions are not available for doubtful debts. Tax deductions are only available when bad debts are written off.
- The tax rate is 30%.
Required:
i) Determine the balance of any current tax liability and deferred tax assets and deferred tax liabilities for Dress to Impress Ltd as at 30 June 2018, in accordance with AASB 112. Use appropriate worksheets and show all necessary workings. (Note: you may need to prepare a draft statement of profit or loss and other comprehensive income and statement of financial position from the trial balance to assist you with your income tax calculations).
ii) Prepare the journal entries to record the current tax liability and deferred tax assets and deferred tax liabilities.
iii) After accounting for income tax, prepare the statement of financial position and statement of profit or loss and other comprehensive income of Dress to Impress Ltd for the year ended 30 June 2018, using the line items and format that a listed company is likely to use.
iv) Prepare a statement of cash flows in accordance with AASB 107 for the year ended 30 June 2018, using the direct method. Show all relevant workings. Note disclosures and comparative figures are not required.
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