Question

Conan Pty Ltd recorded an accounting profit before tax of $750,000 for the year ended 30 June 2020.

Included in the accounting profit were the following items of revenue and expense.

• Entertainment expenses (non-deductible) for $50,000
• Depreciation expense – Motor vehicle (10% p.a., straight-line) for $45,000
• Rent revenue for $70,000
• Penalties and fines for $2,500
• Goodwill impairment for $40,000
• Long service leave expense for $10,000
• Annual leave expense for $20,000

For tax purposes the following applied

• Depreciation expense – Motor vehicle (20%)
• Rent received for $60,000
• Long service leave paid for $2,000
• Annual leave paid $12,500
• Income tax rate (30%)

Required

A.   Use a current tax worksheet to calculate the current tax liability for the year ended 30 June 2020.  

B.   Prepare the adjusting journal entry. (1.5 Marks)

Answer 1

We need to do adjustments for all the items for tax purpose income calculation.