Eureka Ltd commences operations on 1 July 2018. One year after the commencement of its operations (30 June 2019) the entity presents its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2019. The statements are prepared before considering taxation. The following information is available.


Eureka Ltd

Statement of Comprehensive Income

for the year ended 30 June 2019

     $       $
Gross Profit   2,700,000
Administrative expenses 200,000  
Selling expenses   80,000  
Salaries 420,000  
Interest expenses   14,000  
Provision for doubtful debts   70,000  
Long service leave 140,000  
Warranty expenses   84,000  
Depreciation expense – plant 224,000  
Insurance   84,000  
Accounting profit for the year   1,384,000


Eureka Ltd

Assets and Liabilities as disclosed in the Statement of Financial Position

for the year ended 30 June 2019

       $      $
Cash       76,000
Inventory     270,000
Receivables (net)     210,000
Prepaid insurance       28,000
Plant – cost 1,120,000  
Less accumulated depreciation    224,000  
Land   1,260,000
Total assets   2,740,000
Payables      224,000
Provision for warranty expenses        56,000
Loan payable      560,000
Provision for long service leave        56,000
Total liabilities      896,000
Net assets    1,844,000



Other information:


  • Amounts received from sales, including those on credit terms, are taxed at the time of the sale is made.
  • The plant is depreciated over 5 years for accounting purposes, but over 4 years for taxation purposes.
  • Warranty expenses were accrued and, at the year-end, actual payments of $28,000 had been made (leaving of accrued balance of $56,000). Deductions for tax purposes are only available when the amounts are paid and not as they accrued.
  • All administration, selling, salaries expenses and interest expenses incurred have been paid as at year-end.
  • The amount of $84,000 long service leave expense has been paid.
  • Insurance was initially prepaid to the amount of $112,000. At the year-end, the unused component of the prepaid insurance amounted to $28,000. Actual amounts paid are allowed as a tax deduction.
  • Eureka Ltd has some land which cost $840,000 and which has been revalued to its fair value of $1,260,000.
  • The tax rate is 30 per cent.



  1. Compute the taxable income or loss. (using excel spreadsheet)
  2. Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Taxes. (using excel spreadsheet)
  3. Prepare the applicable journal entries at 30 June 2019 to account for tax using the balance sheet method.

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