| Background information |
| The profit before tax, reported in the statement of comprehensive incme of Luckmore Ltd for the year ended 30 June | 2020 |
| amounted to: | 2,780,000 | |
| | |
| Subscription revenue | 86,000 | |
| Government award income | 156,000 | |
| Doubtful debts expense | 17,000 | |
| Depreciation (Equipment) | 112,900 | |
| Depreciation (Buildings) | 27,000 | |
| Maintenance expense | 78,000 | |
| Employee benefits expense | 52,000 | |
| Rent expense | 26,000 | |
| Entertainment expense | 43,400 | |
| | | |
| The draft statements of financial position of the company at 30 June 2020 and 2019 showed the following assets and liabilities: |
| | 2020 ($) | 2019 ($) |
| Assets | | |
| Cash | 182,000 | 199,000 |
| Inventory | 390,000 | 356,000 |
| Accounts receivable | 1,129,000 | 1,077,000 |
| Allowance for doubtful debts | (90,000) | (83,000) |
| Prepaid rent | 48,000 | 45,000 |
| Equipment | 1,129,000 | 1,129,000 |
| Accumulated depreciation - Equipment | (564,500) | (451,600) |
| Buildings | 695,000 | 695,000 |
| Accumulated depreciation - Buildings | (278,000) | (250,000) |
| Land | 434,000 | 434,000 |
| Goodwill (net) | 173,000 | 173,000 |
| Deferred tax asset | ? | 8,460 |
| | | |
| Liabilities | | |
| Accounts payable | 660,000 | 590,000 |
| Provision for maintenance | 139,000 | 104,000 |
| Provision for employee benefits | 95,000 | 69,000 |
| Subscription received in advance | 60,000 | 43,000 |
| Deferred tax liability | ? | 0 |
| | | |
| Additional Information: |
| Subscription revenue is tax assessable when it is received in cash |
| Government award income is not tax assessable |
| Doubtful debts are tax deductible when the company actually incurs bad debts/write off |
| For accounting purpose, the equipment is depreciated using the annual straight line method at a rate of: | 10% |
| For tax purpose, however, the equipment is depreciated using the annual straight line method at a rate of: | 15% |
| Depreciation of buildings is not allowed as tax deductions and goodwill is not tax assessable |
| Employee benefits are tax deductible when they are paid in cash to the employees |
| Rent expense and maintenance expense are tax deductible when paid in cash |
| Entertainment expense is not allowed as tax deduction |
| Assume a tax rate for the financial years ending 30 June 2019 and 2020 to be: | 30% |
| |
| Required: |
| Calculate the taxable income/tax loss and the current tax liability (if any) for the financial year ended 30 June 2020. |
| Prepare a journal entry to recognise the current tax liability/tax loss. |
| |
| Calculate deferred tax asset and deferred tax liability balances as at 30 June 2020. |
| Prepare the deferred tax journal entries for the year ended 30 June 2020. |
| Note that you are NOT required to prepare journals to offset the deferred tax asset and deferred tax liability balances. |
| Show your calculation using deferred tax worksheets by creating separate columns for: |
| carrying amount, tax base, taxable temporary differences and deductible temporary differences. |
| |
| Assume that by 1 December 2020 there was a change in tax rate to: | 27.50% |
| With reference to AASB112 Income Taxes, discuss the accounting treatment of the deferred tax asset and deferred tax liability |
| balances as at 1 December 2020 following a lower tax threshold for the 2020-2021 financial year. |
| Prepare the journal entries to record the effect of change in tax rate. |
| |
