Stuart Ltd commences its operations on 1 July 2019. One year after the commencement of its operations (30 June 2020) the entity presents its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2020. The statements are prepared before considering taxation. The following information is available.
Statement of Comprehensive Income for the year ended 30 June 2020
|Cost of Goods Sold||4,650,000|
|Salaries and wages||1,050,000|
|Provision for doubtful debts||175,000|
|Long service leave||350,000|
|Depreciation expense – Plant||560,000|
|Accounting profit for the year||2,290,000|
Assets and Liabilities as disclosed in the Statement of Financial Position for the year ended 30 June 2020
|Cash and cash equivalent||160,000|
|Accounts receivables (net)||525,000|
|Less- Accumulated depreciation||560,000|
|Provision for warranty expenses||120,000|
|Provision for long service leave||170,000|
|Bank loan payable||1,400,000|
- All selling, administration, and salaries and wages expenses incurred have been paid as at year-end.
- Stuart Ltd has some land which cost $2,300,000 and which has been revalued to its fair value of $3,150,000.
- Insurance was initially prepaid to the amount of $300,000. At the year-end, the unused component of the prepaid insurance amounted to $70,000. Actual amounts paid are allowed as a tax deduction.
- The amount of $180,000 long service leave expense has been paid.
- The plant is depreciated over 5 years for accounting purposes, but over 4 years for taxation purposes.
- Warranty expenses were accrued $210,000 and, at the year-end actual payments of $90,000 had been made (leaving of accrued balance of $120,000). Deductions for tax purposes are only available when the amounts are paid and not as they accrued.
- Amounts received from sales, including those on credit terms, are taxed at the time of the sale is made.
- The tax rate is 30 per cent.
- Compute the taxable income or loss. (using excel spreadsheet).
- Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Taxes. (using excel spreadsheet).
- Prepare the applicable journal entries at 30 June 2020 to account for tax using the balance sheet method.
Taxation Worksheet as at 30 June 2020
|Accounts receivables (net)|
|Plant – net|
|Provision for long service leave|
|Provision for warranty|
|Bank loan payable|
|Temporary difference for year|
|Loss carried forward|
|Movement for the period|
|Tax effected at 30%|
|Tax on taxable income|
|Income tax adjustment|
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