The profit before tax, as reported in the statement of comprehensive income of Finn Ltd (an Australian technology company) for the year ended 30 June 2019
amounted to: $9,820,000
including the following revenue and expense items:
Rent Revenue $306,000
Windfall Gain $552,000
Doubtful debts expense $61,000
Depreciation (Equipment) $398,900
Depreciation (Buildings) $98,000
Sick leave expense $276,000
Annual leave expense $184,000
Insurance expense $92,000
Fines expense $153,400
The draft statements of financial position of the company at 30 June 2019 and 2018 showed the following assets and liabilities:
2019 ($) 2018 ($)
Cash $644,000 $705,000
Inventory $1,380,000 $1,258,000
Accounts receivable $3,989,000 $3,805,000
Allowance for doubtful debts -$319,000 -$294,000
Prepaid insurance $171,000 $159,000
Equipment $3,989,000 $3,989,000
Accumulated depreciation – Equipment -$1,595,600 -$1,196,700
Buildings $2,455,000 $2,455,000
Accumulated depreciation – Buildings -$982,000 -$883,000
Land $1,534,000 $1,534,000
Goodwill (net) $613,000 $613,000
Deferred tax asset ? $98,850
Accounts payable $2,332,000 $2,086,000
Provision for sick leave $491,000 $368,000
Provision for annual leave $337,000 $245,000
Rent received in advance $214,000 $153,000
Deferred tax liability ? $0
Additional Information:
a) Rent revenue is tax assessable when it is received in cash
b) Windfall gain is not tax assessable
c) Doubtful debts are tax deductible when the company actually incurs bad debts/write off
d) For accounting purpose, the equipment is depreciated using the straight line method at a rate of: 10% per annum
For tax purpose, however, the equipment is depreciated on: 15% per annum
e) Depreciation of buildings is not allowed as tax deduction
f) Employee entitlements such as sick leave and annual leave are tax deductible when they are paid in cash to the employees
g) Insurance cost is tax deductible when it is paid in cash
h) Fine expense is not allowed as tax deduction
i) Assume a tax rate of 30% for the financial years ending 30 June 2018 and 2019 30%
1) Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30th June 2019. Prepare a journal entry to recognise the current tax liability/tax loss.
2) Calculate deferred tax asset and deferred tax liability balances as at 30th June 2019. Prepare the deferred tax journal entries for the year ended 30th June 2019. Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances.
Show your calculation using deferred tax worksheets by creating separate columns for carrying amount, tax base, taxable temporary differences and deductible temporary differences.

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