Question

Epping Ltd commences operations on 1 July 2019 and presents its first Statement of Comprehensive Income and an extract of first 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

Gross profit $1,200,000

Administration expenses (350,000)

Salaries (250,000)

Long-service leave (60,000)

Warranty expenses (90,000)

Depreciation expense - equipment (240,000)

Doubtful debts expense (18,000)

Rent (28,000)

Accounting profit before tax $164,000

An extract of Assets and Liabilities as disclosed in the Statement of Financial Position

as at 30 June 2020

ASSETS

Cash at Bank 140,000

Inventory 320,000

Accounts receivable 252,000

Provision for doubtful debts -18,000 234,000

Prepaid rent 20,000

Equipment - cost 1,440,000

Less accumulated depreciation -240,000 1,200,000

Total Assets 1,914,000

LIABILITIES

Accounts payable 650,000

Accrued Salaries 20,000

Provision for warranty expenses 50,000

Loan payable 600,000

Provision for long service leave 60,000

Total liabilities 1,380,000

Net Assets 534,000

Additional Information

1. The tax rate is 30 percent.

2. Rent was initially prepaid to the amount of $48,000. At year end, the unused component of the prepaid rent amounted to $20,000. Actual amounts paid are allowed as a tax deduction.

3. None of the long service leave expense has actually been paid. Long service leave expense is not deductible until it is actually paid.

4. Warranty expenses are accrued and at year end, actual payments of $40,000 were made. Deductions for tax purposes are only available when the amounts are paid and not as they are accrued.

5. Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.

6. There were no bad debt write-offs during the year.

7. The equipment is depreciated over six (6) years for accounting purposes, but over four (4) years for taxation purposes.

8. All administration and salaries expenses incurred have been paid with the exception of $20,000 accrued salaries as at year end. Salaries expense are only deductible when paid.

Required:

Determine Epping Ltd's Taxable Income for the year ended 30 June 2020.

Answer 1

Computation of taxable income of Epping Ltd for the year ended 30 June, 2020
Particulars	Amount ($)	Remarks
Gross profit	1,200,000
Less: Expenses:
Adminstration expenses	350,000
Salaries(250000-20000)	230,000	(Accrued salary is not taxable)
Long service leave	------	(As nothing has been paid yet)
Warranty expenses	40,000	(only to the extent of payment)
Depreciation expense	360,000	(only for 4years for taxation purpose)
Doubtful debts	18,000
Rent	28,000	(unused component is not taken)
Total expenses	1,026,000
Taxable Income	174,000