Net income before taxation is $67,450. A number of items in the profit and loss
ID: 2414463 • Letter: N
Question
Net income before taxation is $67,450. A number of items in the profit and loss account have to be treated differently for tax purposes.
Accounting
Records
Taxation
Records
Interest income earned but not yet
received
27,000
NIL
Impairment of goodwill
45,000
NIL
Transfer to long service leave provision
24,000
NIL
Depreciation of machinery
60,000
45,000
Transfer to allowance for doubtful debts
291,000
279,000
An extract from the balance sheet at balance day reveals:
Assets
Carrying Amount
Tax Base
Plant and Machinery – at cost
Accumulated Depreciation
Goodwill (net)
Accounts receivable (net) Interest receivable
300,000
- 60,000
105,000
85,000
27,000
457,000
300,000
- 45,000
Nil
97,000
Nil
352,000
Liabilities
Provision for Long Service Leave
15,000
Nil
Additional information:
Interest income earned $27,000 will not be included into taxable income until it is received.
An item of machinery costing $300,000 is being depreciated using the straight line method at 20% for accounting purpose and at 15% for taxation purposes.
An amount of $9,000 for long service leave paid has been charged against the provision. This amount can now be claimed as a taxation deduction.
A bad debt for $3,000 has been written off against the allowance for doubtful debts. This amount can now be claimed as a taxation deduction.
Income tax rate is 30%.
Required:
(a) A statement of taxable income.
(b) All necessary general journal entries to record income tax expense and the tax effect of temporary differences. Present your workings for temporary differences in a table
Use the following format:
a)
Net Income before taxation
Add:
Less:
Taxable Income
b)
Carrying Amount
Tax
Base
Deductible Temporary Difference
Taxable Temporary Difference
DTA
DTL
Plant & equipment (at cost)
Accum depn. –
Plant & Equipment
Goodwill (net)
Accounts receivable (net)
Interest receivable
Total assets
Employee provisions
Total liabilities
Net assets
General Journals
Accounting
Records
Taxation
Records
Interest income earned but not yet
received
27,000
NIL
Impairment of goodwill
45,000
NIL
Transfer to long service leave provision
24,000
NIL
Depreciation of machinery
60,000
45,000
Transfer to allowance for doubtful debts
291,000
279,000
Explanation / Answer
Statement of Taxable Income Amount ($)
Net Income Before Taxation $67,450 ADD: Impairment of goodwill $45,000 Transfer to long service leave provision $24,000 Depreciation of machinery $15,000 Transfer to allowance for doubtful debts (291000-279000) $12,000 Less: Interest Not yet Received ( taxable when received) ($27,000) long service leave provision Actual Paid ( Eligible for deduction) ($9,000) Actual Bad Debts ( Eligible for deduction) ($3,000) Taxable Income ( Answer) $1,24,450