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Corporate Reporting

Corporate ReportingCorporate Reporting

Case Study (5 Marks)

The accounting profit before tax for the year ended 30 June 2016 for Alex Ltd amounted to $18 500 and included:

Depreciation — motor vehicle (25%) $ 4 500
Depreciation — equipment (20%) 20 000
Rent revenue 16 000
Royalty revenue (non-taxable) 5 000
Doubtful debts expense 2 300
Entertainment expense (non-deductible) 1 500
Proceeds on sale of equipment 19 000
Carrying amount of equipment sold 18 000
Annual leave expense 5 000

The draft statement of financial position at 30 June 2016 contained the following assets and liabilities.
2016 2015
Assets
Cash $ 11 500 $ 9 500
Receivables 12 000 14 000
Allowance for doubtful debts (3 000) (2 500)
Inventories 19 000 21 500
Rent receivable 2 800 2 400
Motor vehicle 18 000 18 000
Accumulated depreciation — motor vehicle (15 750) (11 250)
Equipment 100 000 130 000
Accumulated depreciation — equipment (60 000) (52 000)
Deferred tax asset ? 6 450
136 100
Liabilities
Accounts payable 15 655 21 500
Provision for annual leave 4 500 6 000
Current tax liability ? 7 600
Deferred tax liability ? 2 745
37 845

Additional information
(a) The company can claim a deduction of $15 000 (15%) for depreciation on equipment, but the motor vehicle is fully depreciated for tax purposes.
(b) The equipment sold during the year had been purchased for $30 000 2 years before the date of sale.
(c) The company tax rate is 30%.

Required
1. Prepare the current tax worksheet and the journal entry to recognise the current tax as at 30 June 2016.
2. Prepare the deferred tax worksheet and any necessary journal entries to adjust deferred tax accounts.

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