Question

(8 points) Net profit before taxation is $75000. The profit and loss account includes the following expenses not allowable as taxation deductions: 8 000 3 000 Entertainment expenses Transfer to doubtful debts allowance Transfer to long service leave provision An extract from the balance sheet reveals: 5 000 Carrying amount Tax base Assets Accounts receivable (net) 72000 75000 Liabilities Provision for long service leave 5000 Nil The tax rate is 30%. PAYG instalments already remitted to the ATO amount to $20 000. Required: a) Prepare a statement oftaxable income. b) Prepare the genera/journal entries to record income tax expense and the temporary difference,

Answer 1

8 Points

a

Statement of Taxable Income
Particulars	Amount ($)
Net Profit before taxation	75,000
Add: Entertainment expenses	8,000
Add: Transfer to Doubtful Debts allowance	3,000
Add: Transfer to Long service provision	5,000
Taxable Income	91,000
Tax @ 30%	27,300
Less: PAYG Instalment	20,000
Net tax payable	7,300

Particulars	Carrying amount	Tax Base	Temporary Difference	DTA/DTL
Doubtful Debts allowance	72,000	75,000	(3,000)	DTA @ 30%
Long service provision	5,000	-	(5,000)	DTA @ 30%
			(8,000)	DTA @ 30%

Note:- Entertainment expenses are permanent differences, hence DTA/ DTL shall not be created

b Journal

b	Current Tax Expense A/c	Dr	27,300
	Deferred Tax Asset A/c	Dr	2,400
	To Current Tax Liability A/c	Cr		27,300
	To Deferred Tax A/c	Cr		2,400
	(Being Current Tax and deferred tax recorded)

7 points

S No	Particulars	Asset Carrying amount	Less	Future Taxable amounts	Plus	Future deductible amounts	Equals	Tax Base	DTA/DTL
a	Accounts Receivable	41,000		-		7,000		48,000	DTA
b	Prepaid Expenses	3,000		3,000				-	DTL
c	Machinery	33,000		-		-		33,000	None
d	Loan Balance	59,000		-		-		59,000	None
e	Machinery	75,000		25,000		-		50,000	DTL
f	Accrued Commission	1,400		1,400		-		-	DTL
g	Machinery	40,000		-		8,000		48,000	DTA