Question

The accounting profit before tax of Jameson Ltd for the year ended 30 June 2018 was $320,000. It included the following revenue and expense items:

Amortisation of development costs	$30,000
Employee benefits expense	54,000
Carrying amount of plant sold	36,667
Depreciation expense - plant (15%)	40,000
Doubtful debts expense	12,000
Entertainment expense	14,220
Fines and penalties	7,200
Goodwill impairment	1,000
Insurance expense	24,000
Legal fees	4,200
Proceeds on sale of plant	30,000
Rent revenue	25,000
Royalty revenue (non-assessable)	3,500
Restructuring expenses	25,000

The draft statement of financial position as at 30 June 2018 included the following assets and liabilities:

	2018	2017
Assets
Cash	42,000	57,000
Accounts receivable	190,000	160,000
Allowance for doubtful debts	(26,000)	(22,000)
Inventory	142,000	152,000
Prepaid insurance	30,000	25,000
Rent receivable	3,500	5,500
Development costs	120,000	-
Accumulated amortisation - development costs	(30,000)	-
Plant – at cost	200,000	266,667
Accumulated depreciation - plant	(90,000)	(80,000)
Goodwill	10,000	10,000
Goodwill - accumulated impairment losses	(2,000)	(1,000)
Deferred tax asset	?	26,100
Liabilities
Accounts payable	111,500	94,000
Current tax liability	?	12,500
Provision for employee benefits	61,000	65,000
Provision for restructuring	25,000	-
Borrowings	210,000	190,000
Deferred tax liability	?	17,150

Additional information:

a) All plant was purchased on 1 July 2015. The tax depreciation rate for plant is 20%. The plant sold on 30 June 2018 cost $66,667.

b) A tax deduction for development expenditure of 125% of the $120,000 spent during the year is available under income tax legislation. The profit before tax reflects the amount of development costs amortised in the current period.

c) Assume all depreciation rates are on a straight line basis.

d) Rent is assessed for tax when received in cash.

e) Actual amounts paid for insurance are allowed as a tax deduction.

f) No deduction is allowed for taxation purposes in relation to entertainment, fines and penalties.

g) Legal fees of $4,200 are capital in nature and non-deductible for tax purposes.

h) For tax purposes, restructuring costs are deductible only when paid.

i) The company pays tax in quarterly instalments. The following payments were made during the year ended 30 June 2018:

28 July 2017 (Final payment for 30 June 2017)	$10,700
28 October 2017 (1st payment for 30 June 2018)	9,570
28 February 2018 (2nd payment for 30 June 2018)	10,470
28 April 2018 (3rd payment for 30 June 2018)	7,550

j) Except for the quarterly instalments above, no journal entries related to tax have been recorded for the year ended 2018. Assume the tax balances at 30 June 2017 are correct.

k) The tax rate is 30%.

  
Required:

1. Calculate the taxable income and current tax liability using an appropriate worksheet for the year ended 30 June 2018 (show all workings).

2. Prepare the deferred tax worksheet to calculate the deferred tax asset and liability balances and adjustments for the year ended 30 June 2018. Include all accounts and net balances where appropriate.

3. Prepare the journal entries to recognise the current tax liability, deferred tax assets and liabilities at 30 June 2018 calculated in 1. and 2.

Answer 1