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 | |
| Expenses: | ||
| 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 | |
| 1,316,000 | ||
| 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
| $ | $ | |
| Assets | ||
| Cash | 76,000 | |
| Inventory | 270,000 | |
| Receivables (net) | 210,000 | |
| Prepaid insurance | 28,000 | |
| Plant – cost | 1,120,000 | |
| Less accumulated depreciation | 224,000 | |
| 896,000 | ||
| Land | 1,260,000 | |
| Total assets | 2,740,000 | |
| Liabilities | ||
| 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.
Required:
- 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 2019 to account for tax using the balance sheet method.
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