Part A(8 marks) The following is relevant tax information for Delta Ltd to assis
ID: 2545017 • Letter: P
Question
Part A(8 marks) The following is relevant tax information for Delta Ltd to assist in the calculation of taxable income for inclusion in the 30 June 2017 financial statements. Included in profit before tax for the year ending 30 June 2017 is the following relevant items: preparation of the Profit before tax Non- deductible entertainment expense Depreciation expense Doubtful debts expense Annual leave expense Exempt government grant Interest Revenue 180,000 5,000 40,000 10,000 12,000 20,000 8,000 The relevant balance sheet accounts are: 2017 2016 Allowance for doubtful debts Provision for annual leave Interest Receivable Additional information 25,000 50,000 20,000 32,000 48,000 23,000 (a) The accounting depreciation rate is 20% per annum for plant and equipment, whilst (b) Interest and rent revenue are assessable for tax purposes whern (c) The company tax rate is 30% the tax depreciation rate/allowance is 30% per annum. Delta Ltd adopts the straight-line method for both accounting and tax purposes. the cash is received. (d) The company has brought forward tax losses of $30,000 to offset against any taxable income as at 30 June 2017. The tax loss was recognised as a def asset as at 30 June 2016.Explanation / Answer
Profit Before Tax
180000
Add
Non Deductable entertainment Expense
5000
Less
Extra Depreciation
-20000
Add
Adjusted Doubtful debt Expense
7000
Add
Annual Leave Expense
2000
Less
Grant Exempted
-20000
Less
Differed Tax Asset
-30000
Taxable Income
124000
Note
Taxable income is computed cash basis not accrual basis
Adjusted Depreciation.
Gross value of Asset= Book depreciation *100/Book Depreciation Percentage.
Gross Value of Asset= 40000*100/20= 200000
Depreciation as per tax rate= 200000*30%=60000
Extra depreciation chargeable= Tax depreciation- Book depreciation= 60000-40000=20000
Adjusted Doubtful debt expense
Doubtful debts Recovered = 32000-25000= 7000
Actual expense to be deducted= Actual income- Actual expense
=7000-10000=-3000
But we deducted 10000 so compute taxable income we have to add back 7000 that is Actual expense-adjusted expense
Adjusted Annual expenses
Adjust Annual leave expense= total annual leave expense – Non paid annual leave expense
Non paid annual leave for the Year= ending provision-starting provision=50000-48000=2000
Total annual leave expense= 12000
Actually paid expenses = 12000-2000=10000
So we have to add back 2000 non paid expense to find taxable income.
Interest revenue adjustment.
There is adjustment required because its traded in cash basis.
Profit Before Tax
180000
Add
Non Deductable entertainment Expense
5000
Less
Extra Depreciation
-20000
Add
Adjusted Doubtful debt Expense
7000
Add
Annual Leave Expense
2000
Less
Grant Exempted
-20000
Less
Differed Tax Asset
-30000
Taxable Income
124000
Note