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.
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