Question

The following information relates to Jefferson Limited for the year ended 30 June 2019.

Accounting profit before income tax $320 000

Interest revenue (all accrued, no receipts during the year) 7 000

Speeding fine (not tax deductible) 10 000

Depreciation of machinery (Note 1) 30 000

Superannuation expense (not deductible until paid: Note2) 6 000

Insurance expense (Note 3) 8 000

Income tax rate 30%

Notes:

1) Deprecation of machinery is $45,000 for tax purposes.

2) Total $5,500 has been paid during the year and $500 was payable on 30 June 2019.

3) Total $10,000 has been paid on 1 December 2018, $2,000 has been accounted as a prepaid expense asset on 30 June 2019.

4) Income received in advance on 30 June 2019 accounted for $4,000

Required: Calculate the taxable income and the current tax liability for the year ended 30 June 2019 for Jefferson Limited by reconciling accounting profit to tax profit. Also provide a journal entry for the current tax liability.

Answer 1

Accounting profit before income tax	$320000
Add : speeding fine	$10000
Depreciation	$30000
Superannuation expense (only 5500 paid during the year)	$500
Less : Depreciation	($45000)

Prepaid income	($4000)
TAXABLE INCOME	$311500

current tax liability for the year ended 30 June 2019 = $311500 * 20%

= $62300

Journal entry for current tax liability :

Income tax $62300

Income tax liability $62300

Notes:

Interest is chargeable on accruable basis therefore no adjustment made.

Insurance is already adjusted properly

Out of $10000 insurance expense $2000 is prepaid , therefore deductable insurance expense is $8000 ( which is already deducted )