Question

Zeus Ltd was established on 1 July 2018 with share capital totalling $132,000.

 

One year later the statement of comprehensive income and statement of financial position were as follows:

 

Statement of   comprehensive income for the year ended 30 June 2019
	$		$
Sales revenue			650,000
Interest   revenue			500
Dividend   revenue			300
Exempt income			400
Capital profit   on sale of land			700
			651,900
Cost of sales	175,000
Depreciation   on machinery	5,900
Depreciation   on vehicles	100
Goodwill   impairment loss	300
Salaries and   wages	120,000
Annual leave	1,800
Rent of   premises	72,000
Insurance	1,200
Entertainment	400
Fines and   penalties	100
Fringe   benefits tax	200
Warranty   expense	600
Doubtful debts   expense	200
Other expenses	194,100		571,900
Profit before   income tax			80,000

 

Other information:

For tax purposes, depreciation on machinery is $14,000 and for vehicles $300, for the year ended 30 June 2019.

Doubtful debts, annual leave and service warranties are expensed in the year ending 30 June 2019 but are not tax deductible for tax purposes until paid.

Zeus Ltd has accrued annual leave entitlements of $1,800 in calculating net profit for the year ended 30 June 2019.

Service warranty expense is only deductible as a tax deduction when claimed by customers.

The company accrues doubtful debts expense as soon as it appears on a customer’s account as uncollectible. However, the bad debt is not allowable as a tax deduction until all avenues to collect the account have been exhausted.

The tax rate is 30% and taxable income is $79,500.

 

Requirements:

A)    a deferred tax worksheet 

(The deferred tax worksheet should follow the format, CA amount, Tax base, Deductible temporary difference, Taxable temporary difference, Tax expense, Current tax payable)

B)   the journal entry to account for taxes 

C)   a statement of comprehensive income showing as much detail as possible 

Answer 1

A. Computation of current tax liability

A. Computation of current tax liability
Particulars	Amount in $
Profit before tax (A)	80,000
Add : Disallowed items as per income tax
Depreciation as per books	6,000
Doubtful debt expenses	200
Warranty expenses	600
Annual leave	1,800
Sub total (B)	8,600
Less : Allowable deduction as per income tax
Depreciation as per income tax	14,300
Exempt income	400
Sub total (C )	14,700
Taxable profit (D=A+B-C)	73,900
Tax @30% (E=D*30%)	22,170

Note : 1. Assumed fringe benefit tax is allowable expenses

2. Assumed Tax rate of 30% on capital profit on sale of land

B Computation of deferred tax

Deferred tax working
Particulars	Amount on which deferred tax created	Deferred tax @30%
Deferred tax liability
Depreciation ($14,300 - $6,000)	8300	2,490
Sub total (A)	8300	2,490
Deferred tax asset
Dobutful debt	200	60
Warranty expenses	600	180
Annual leave	1800	540
Sub total (B)	2600	780
Net deferred tax liability (C=A-B)	5,700	1,710
Deferred tax expenses		1,710

C. Statement of comprehensive income showing income tax expenses and profit after tax

	Amount in $
Revenue	6,51,400
Expenses, excluding finance costs	-5,71,900
Finance income	500
Profit (loss) before income tax expense	80,000
Income tax expense	23,880
Profit after tax	56,120

Answer 2

How will you get Revenue 651,400