Current Tax and Deferred Tax Computation
Food-Pro Ltd is a special food processing company. For the financial year ended 30 June 2018, FoodPro Ltd made a profit before tax of $607,500.
The following items of income and expenses are included in the calculation of its profit for the year:
|Loss on disposal of plant||$16,001|
|Depreciation expenses – plant||$96,000|
|Amortization of Research & Development costs||$72,000|
|Doubtful debts expense||$33,600|
|Annual leave expense||$87,990|
An extract of the company’s balance sheet for the financial year ended 30 June 2018 together with comparative figures for 2017 is given as follows:
|Allowance for doubtful debts||$(38,400)||$(43,200)|
|Accumulated depreciation – Plant||$(230,400)||$(206,400)|
|Research & Development costs||$288,000||–|
|Accumulated amortisation of development costs||$(72,000)||–|
|Deferred tax asset||?||?|
|Current tax liability||?||$30,000|
|Provision for warranty expenses||$146,400||$156,000|
|Provision for annual leave||$135,000||$120,000|
|Deferred tax liability||?||?|
- Rent revenue will be taxed on cash basis.
- Entertainment expenditure is not allowed as a tax deduction.
- Because of changing technology, Food-Pro Ltd decided to sell one of its specialized plants, which it purchased three years ago. The original cost of the plant was $160,001, and it was sold on 30 June 2018 for $72,000.
- For accounting purpose, Food-Pro Ltd depreciates the acquisition cost of plant at 15% per annum using the straight-line method. For tax purpose, however the plant cost is depreciated at 20% straight line.
- Doubtful debts expenses are not deductible for tax purpose unit the company actually incurs bad debts.
- Employee entitlements such as annual leave and long service leave are not allowable as tax deduction until paid to the employee.
- Insurance expense is treated as an allowable tax deduction when paid in cash.
- A tax deduction of 125% can be claimed on Research & Development expenditure paid.
- The tax rate for the year ended 30 June 2017 and 30 June 2018 was 30%.
- Calculate the taxable income/loss of Food-Pro Ltd for the year ended 30 June 2018. (15 marks)
- Using deferred tax worksheet, calculate the deferred tax asset (DTA) and deferred tax liability (DTL) balance as at 30th June 2017 and 30 June 2018 (Create columns for carrying amount, tax base, assessable temporary difference and deductible temporary difference). (20 marks)
- Prepare the tax-effect journal entries for Food-Pro Ltd for the year ended 30 June 2018. (5 marks)
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