Question 1 Bax Ltd’s statement of profit or loss for the year ended 30 June 2017
ID: 2602500 • Letter: Q
Question
Question 1
Bax Ltd’s statement of profit or loss for the year ended 30 June 2017 and extracts from its statements of financial position as at 30 June 2017 and 30 June 2016 are shown below. The statements for the current year are yet to be finalised by accounting for income tax.
Bax Ltd
Statement of Profit or Loss
for the year ending 30 June 2017
Income
Service revenue
$ 900 000
Rent revenue
50 000
Insurance claim for loss of profits
41 200
991 200
Less: Expenses
Employee expenses
660 000
Insurance expense
50 000
Accounting fees
5 500
Bad and doubtful debts
19 500
Cleaning and maintenance
3 250
Depreciation of equipment
5 500
Entertainment expenses
4 000
Interest on borrowings
75 000
Legal fees
3 800
Motor vehicle expenses
6 000
Other
3 750
Restructuring costs
23 000
859 300
Profit before tax
$ 131 900
1
Bax Ltd
Statement of Financial Position (Extract)
as at 30 June
2017
2016
Assets
Cash at bank
$ 900 100
$ 800 100
Trade debtors
240 550
200 000
Allowance for doubtful debts
(38 000)
(20 000)
Prepaid insurance
10 950
5 000
Land – at fair value
450 000
300 000
Equipment – at cost
58 000
58 000
Accumulated depreciation
(24 500)
(19 000)
Other debtors
142 400
—
Deferred tax asset
?
18 000
Liabilities
Trade creditors
239 000
245 000
Borrowings
543 800
438 500
Unearned rent revenue
50 000
—
Provision for employee benefits
49 500
40 000
Provision for restructuring
23 000
—
Other creditors
10 000
—
Current tax liability
—
13 300
Deferred tax liability
?
32 700
Additional information
The original cost of the land is $200 000.
The tax written down value of equipment at 30 June 2017 is $28 000 (2016: $35 000). During the 2017 year, there were no additions or disposals of equipment.
Legal fees of $3800 are capital in nature and non-deductible for tax purposes.
Other creditors at 30 June 2017 include an accrual for accounting fees of $4500 for work not yet performed (2016: $Nil). For tax purposes, the accounting fees are deductible only if work has been performed.
For tax purposes, restructuring costs are deductible only when paid.
Other debtors at 30 June 2017 include $41 200 relating to an insurance claim that is in-process. Insurance income is only assessable for tax purposes after the insurance proceeds have been received.
The corporate tax rate is 30%.
Required:
Prepare the deferred tax worksheet at 30 June 2017 and the deferred tax entries for the year.
Bax Ltd
Statement of Profit or Loss
for the year ending 30 June 2017
Income
Service revenue
$ 900 000
Rent revenue
50 000
Insurance claim for loss of profits
41 200
991 200
Less: Expenses
Employee expenses
660 000
Insurance expense
50 000
Accounting fees
5 500
Bad and doubtful debts
19 500
Cleaning and maintenance
3 250
Depreciation of equipment
5 500
Entertainment expenses
4 000
Interest on borrowings
75 000
Legal fees
3 800
Motor vehicle expenses
6 000
Other
3 750
Restructuring costs
23 000
859 300
Profit before tax
$ 131 900
Explanation / Answer
Solution:
Preparing the Deferred Tax Worksheet at 30 june 2017 and the Deferred Tax Entries for the Year:
(1)
The entries to record the deferred tax in proFt or loss for the year ended 30 June 2017 are as follows,
The entries to record the deferred tax in other comprehensive income for the year ended 30 June 2017 are as follows:
Deferred Tax Worksheet as at 30 June 2017 Carrying Amount Deductible Amount Tax Base Taxable Temp Diffs Deductible Temp Diffs Assets Cash at bank $900,100 $0 $900,100 (2) $0 $0 Trade debtors $202,550 $0 $240,550 (2) $0 $38,000 Prepaid insurance $10,950 $0 $0(1)
$10,950 $0 Land $450,000 $200,000 $200,000 (1) $250,000 $0 Equipment $33,500 $28,000 $28,000 (1) $5,500 $0 Other debtors $41,200 $0 $0 (1) $41,200 $0 Liabilities Trade creditors $239,000 $0 $239,000 (1) $0 $0 Borrowings $543,800 $0 $543,800 (1) $0 $0 Unearned revenue $50,000 $50,000 $0 (2) $0 $50,000 Provision for employee benefits $49,500 $49,500 $0 (1) $0 $49,500 Provision for restructuring $23,000 $23,000 $0 (1) $0 $23,000 Other creditors $4,500 $4,500 $0 (1) $0 $4,500 Total Temporary Differences $307 650 $165,000 DTL (30%) $92 295 DTA (30%) $49,500 Begin Balances $32,700 $18,000 Increase for year $59,595 $31,500 OCI $45,000 $0 Profit or loss $14,595 $31,500 $59,595 $31,500Related Questions
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