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Accounting for income tax
Twinkle Ltd commences operations on 1 July 2013 and presents its first Statement of Profit or Loss and Other Comprehensive Income, and first Statement of Financial Position on 30 June 2014. The statements are prepared before considering taxation. The following information is available:
Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2014
$
Gross profit
420,000
Royalty revenue (exempt income)
30,000
Expenses:
Administration expenses
75,000
Salaries
150,000
Long service leave
15,000
Warranty expenses
20,000
Depreciation expense - plant
80,000
Insurance
370,000
Accounting profit before tax
Assets and liabilities as disclosed in the Statement of Financial Position as at 30 June 2014
Assets
Cash
10,000
Inventory
110,000
Accounts receivable
40,000
Prepaid insurance
Goodwill
Plant - cost
400,000
Less: accumulated depreciation
320,000
Total assets
515,000
Liabilities
Accounts payable
35,000
Provision for warranty expenses
Loan payable
225,000
Provision for long service leave
Total liabilities
285,000
Net assets
230,000
Other information:
Required:
i) Determine the balance of any current and deferred tax assets and liabilities (using appropriate worksheets) as at 30 June 2014, in accordance with AASB 112. Show all necessary workings.
ii) Prepare the journal entries to record the current tax liability and movements in deferred tax assets and liabilities.
iii) What would your answer for part (a) if the following items on the statement of profit or loss and other comprehensive income were changed: 'Gross profit' was $360,000 (instead of $420,000) and the 'Royalty revenue (exempt income)' was $90,000 (instead of $30,000). Show all calculations and necessary workings.
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