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Julienne Ltd decided to change its accounting for long-service leave in order to accrue expense sooner...

Julienne Ltd decided to change its accounting for long-service leave in order to accrue expense sooner than had been done previously. The effect on provision for employee entitlements as at the end of 2018 was to increase it by $17 500. By the end of 2019, the liability would go up by $24 000. The company’s income tax rate is 30%. What would be the effect of the change on 2019 net profit?

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Answer #1

At the end of 2019, the liability increases from $17,500 to $24,000 then the income will decrease by $6,500 which result in the decrease of income tax at the end of 2019. Hence the effect of change in 2019 net profit is the decrease of net profit and tax.

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