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Topic 5 tutorial questions

22 Boiling Pot Limited commences operations on 1 July 2014. One year after the
commencement of its operations (30 June 2015) the entity prepares the following
information, showing both the carrying amounts for accounting purposes and the tax bases
of the respective assets and liabilities.
Carrying values ($)
Tax bases($)
Assets
Cash
60 000
60 000
Accounts receivable (net)
50 000
60 000
Prepaid insurance
20 000
Inventory
80 000
80 000
Plantnet
450 000
400 000
Land
600 000
400 000
1 260 000
1 000 000
Liabilities
Accounts payable
60 000
60 000
Provision for long-service leave
30 000

Provision for warranty


40 000
Loan payable
400 000
400 000
530 000
460 000
Net assets
730 000
540 000
Other information
After adjusting for differences between tax rules and accounting rules, it is determined that
the taxable income of Boiling Pot Limited is $700 000.
There is an allowance for doubtful debts of $10 000.
An item of plant is purchased at a cost of $600 000 on 1 July 2014. For accounting
purposes it is expected to have a life of four years; however, for taxation purposes it can be
depreciated over three years. It is not expected to have any residual value.
Boiling Pot Limited has some land, which cost $400 000 and which has been revalued to
its fair value of $600 000 in accordance with AASB 116.
None of the amounts accrued in respect of warranty expenses or long-service leave has
actually been paid.
The tax rate is 30 per cent.
REQUIRED
Prepare the year-end journal entries to account for tax using the balance sheet
method. LO 18.4, 18.5, 18.6, 18.9

23 MR Limited commences operations on 1 July 2014 and presents its first statement of
comprehensive income and first statement of financial position on 30 June 2015. The
statements are prepared before considering taxation. The following information is
available:
Statement of comprehensive income for the year ended 30 June 2015
Gross profit
730 000
Expenses
Administration expenses
80 000
Salaries
200 000
Long-service leave
20 000
Warranty expenses
30 000
Depreciation expenseplant
80 000
Insurance
20 000
430 000
Accounting profit before tax
300 000
Assets and liabilities as disclosed in the statement of financial position as at 30 June 2015
Assets
Cash
20 000
Inventory
100 000
Accounts receivable
100 000
Prepaid insurance
10 000
Plantcost
400 000
less Accumulated depreciation
80 000
320 000
Total assets
550 000
Liabilities
Accounts payable
80 000
Provision for warranty expenses
20 000
Loan payable
200 000
Provision for long-service leave expenses
20 000
Total liabilities
320 000
Net assets
230 000
Other information
All administration and salaries expenses incurred have been paid as at year end.
None of the long-service leave expense has actually been paid. It is not deductible until it
is actually paid.
Warranty expenses were accrued and, at year end, actual payments of $10 000 had been
made (leaving an accrued balance of $20 000). Deductions are available only when the
amounts are paid and not as they are accrued.
Insurance was initially prepaid to the amount of $30 000. At year end, the unused
component of the prepaid insurance amounted to $10 000. Actual amounts paid are
allowed as a tax deduction.
Amounts received from sales, including those on credit terms, are taxed at the time the
sale is made.
The plant is depreciated over five years for accounting purposes, but over four years for
taxation purposes.
The tax rate is 30 per cent.
REQUIRED
Provide the journal entries to account for tax in accordance with AASB 112. LO 18.4, 18

24 At 30 June 2014, E-Surfboards Limited had the following temporary differences:


Carrying
Tax base
Temporary
Asset or liability
amount ($000)
($000) difference ($000)
Computers at cost
300
300
Accumulated depreciation
(60)
(100)
Computers (net)
240
200
40
Accounts receivable
100
100
Allowance for doubtful debts
(10)
0
Accounts receivable (net)
90
100
10
Provision for warranty costs
30
0
30
Provision for employee benefits (LSL)
20
0
20
The following information is available for the following year, the year ending 30 June 2015.
Statement of comprehensive income for E-Surfboards Limited for the year
ended 30 June 2015
$000
Revenue
4 000
Cost of goods sold expense
(1 800)
Depreciation expense
(60)
Warranty expense
(90)
Bad and doubtful debts expense
(25)
Other expenses
(1 375)
Profit before tax
650
E-Surfboards Limited depreciates computers over five years in its accounting records but
over three years for tax purposes. The straight-line method is used. During the year ESurfboards wrote off bad debts amounting to $15 000. Warranty costs of $70 000 were paid
during the year. No amounts were paid for long-service leave during the year. The following
information is extracted from the statement of financial position at 30 June 2015:
$000
Assets
Accounts receivable
120
Allowance for doubtful debts
(20)
Liabilities
Provision for warranty costs
50
Provision for employee benefits (LSL)
30
There was no acquisition of plant and equipment during the year.
The tax rate as at 30 June 2014 and 30 June 2015 was 30 per cent.
REQUIRED
(a) Calculate the amount of each of E-Surfboards temporary differences, if any, at 30
June 2014, and state whether it is deductible or taxable.
(b) What is the balance of the deferred tax liability and deferred tax asset, if any, as at 30
June 2014?
(c)Calculate E-Surfboards taxable income for the year ended 30 June 2015.
(d) Prepare journal entries to record current tax and deferred tax for the year ended 30
June 2015. LO 18.4, 18.5, 18.6

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