Reference no: EM131040903

Question 1

Accounting for income tax

Frog Ltd has prepared its draft statement of profit or loss and other comprehensive income and statement of financial position on 30 June 2015. The statements are prepared before considering taxation. The following information is available:

Extract from statement of profit or loss and other comprehensive income for the year ended 30 June 2015

	$	$
Gross profit		758,000
Other income:
Rent revenue		14,000
Royalty revenue (exempt from income tax)		5,000
Proceeds from sale of plant		29,000
Expenses:
Administration expenses	116,500
Doubtful debts expense	4,000
Salaries	270,200
Rent	26,000
Annual leave	13,500
Entertainment expenses (not tax deductible)	2,000
Warranty expenses	12,000
Carrying amount of plant sold	40,000
Depreciation expense - plant	14,000
Depreciation expense - motor vehicles	8,000
Insurance	10,400	(516,600)
Accounting profit before tax		289,400

Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2015

	2015$	2014$
Assets:
Cash	196,500	7,000
Inventory	210,000	85,000
Accounts receivable	76,000	34,000
Less Allowance for doubtful debts	(8,600)	(5,000)
Rent receivable	2,000	3,000
Prepaid insurance	1,200	500
Plant - cost	70,000	120,000
Less Accumulated depreciation	(46,000)	(42,000)
Motor vehicles - cost	32,000	32,000
Less Accumulated depreciation	(20,500)	(12,500)
Deferred tax asset	?	17,160
Liabilities:
Accounts payable	17,300	12,800
Provision for annual leave	16,200	23,000
Provision for warranties	21,500	18,700
Current tax liability	?	32,600
Deferred tax liability	?	2,925
Loan payable	20,000	30,000

Additional information:

All administration, rent and salaries expenses incurred have been paid as at year end.

Tax deductions for annual leave, warranties, insurance and rent are available when the amounts are paid, and not as amounts are accrued.
Amounts received from sales, including those on credit terms, are taxed at the time the sale is made.

Rent income is taxed when amounts are received, and not as amounts are accrued.

The company can claim a tax deduction of $10,500 for depreciation on plant, and $12,000 for depreciation on motor vehicles. Accumulated depreciation for tax purposes at 30 June 2014 was $31,500 for plant, and $18,750 for motor vehicles.

The plant sold during the year (sold on 1 July 2014) had been purchased for $50,000 on 1 July 2013. For taxation purposes, the plant was depreciated at 15% p.a.

The tax rate is 30%.

Required:

i) Determine the balance of any current and deferred tax assets and liabilities as at 30 June 2015, in accordance with AASB 112.

ii) Prepare the journal entries to record the current tax liability and movement in the deferred tax assets and deferred tax liabilities.