Question

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V Ltd was established on 1 July 2018 with share capital of $132 000. One year later the statement of comprehensive income and statement of financial position were as follows: Statement of Sales revenue Interest revenue Dividend revenue Exempt income Capital profit on sale of land hensive income for the year ended 30 June 2019 650 000 300 651 900 Cost of sales Depreciation on machinery Depreciation on vehicles Goodwill impairment loss Salaries and wages Annual leave Rent of premises Insurance Entertainment Fines and penalties Fringe benefits tax Warranty expense Doubtful debts expense Other expenses Profit before income tax 175 000 5 900 100 300 120 000 1 800 72 000 1200 100 194 100 51900 Other information: For tax purposes, depreciation on machinery is S14 000 and for vehicles S300, for the year ended 30 June 2019 .Doubtful debts, annual leave and service warranties are expensed in the year ending 30 June 2019 but are not deductible for tax purposes until paid. V Ltd has accrued annual leave entitlements of S1 800 in calculating net profit for the year ended 30 June 2019 Serice warranty expense is only deductible as a tax deduction when claimed by customers The company accrues doubtful debts expense as soon as it appears on a customer's account as uncollectible. However, the bad debt is not allowable as a tax deduction until all avenues to collect the account have been exhausted. The tax rate is 30 per cent. Required: 1) Complete the journal entry to account for current taxes (5 marks) 2) Complete the deferred tax worksheet (15 marks) 3) Completion of the Statement of Comprehensive Income for the year ended 30 June 2019 (5 marks)

Answer 1

Calculation of taxable income and tax liability
Particulars	Amount ($)	Amount ($)
Profit before income tax		80000
Add: Incomes taxable and expenses inadmissible
Depreciation on machinery	5900
Depreciation on vehicles	100
Doubtful debts expense	200
Warranty expense	600
Annual leave entitlements	1800
		8600
Less: Expenses admissible and incomes not taxable
Depreciation on machinery	14000
Depreciation on vehicles	300
Exempt income	400
		14700
Taxable Income		73900
Tax liability @ 30%		22170
Journal entry for current taxes:
Particulars	Debit ($)	Credit ($)
Income tax expense	22170
Income tax payable		22170
To record income tax for the year
Income tax payable	22170
Cash at Bank		22170
To record payment of income tax

Deferred tax liability (DTL) or Deferred tax asset (DTA) calculation
Particulars	DTL or DTA	Amount	Deferred tax amount
Depreciation on machinery	DTA	8100	2430
Depreciation on machinery	DTA	200	60
Doubtful debts expense	DTL	200	60
Warranty expense	DTL	600	180
Annual leave entitlements	DTL	1800	540
Total DTL	780
Total DTA	2490

Entry to record deferred taxes would be
Deferred Tax asset 2490
Deferred tax expense 2490
To record Deferred tax asset

Deferred Tax expense 780
Deferred tax liability 780
To record Deferred tax liability

Statement of Comprehensive Income for the year ended 30 June 2019
Particulars	Amount ($)	Amount ($)
Sales	650000
Cost of sales	175000
Gross profit		475000
Operating expenses:
Depreciation on machinery	5900
Depreciation on vehicles	100
Salaries and Wages	120000
Annual leave	1800
Rent of premises	72000
Insurance	1200
Entertainment	400
Fines and Penalties	100
Fringe benefits tax	200
Warranty expense	600
Doubtful debts expense	200
Other expenses	194100
Total expenses		396600
Operating incomes
Interest revenue	500
Dividend Income	300
Exempt income	400
Total incomes		1200
Net Income		79600
Other comprehensive incomes and losses
Goodwill impairment loss	-300
Capital profit on sale of land	700	400
Net income before tax		80000
Tax expense		22170
Net income after tax		57830