Student ID Version

Input student ID here: 218631563 15 Background Information:

As reported in the statement of comprehensive income of Wonderland Ltd (a manufacture company) for the year
ended 30 June 2021:
The profit before tax amounted to: $11,680,000
and included the following revenue and expense items:
Rent revenue $365,000
Government grant received $657,000
Doubtful debts expense $73,000
Depreciation (Plant) $474,500
Depreciation (Buildings) $116,000
Warranty expense $328,000
Annual leave expense $219,000
Insurance expense $109,000
Entertainment expense $182,500

The draft statements of financial position of the company at 30 June 2021 and 2020 showed the following assets
and liabilities:
2021 ($) 2020 ($)
Assets
Cash $766,000 $839,000
Inventory $1,642,000 $1,496,000
Accounts receivable $4,745,000 $4,526,000
Allowance for doubtful debts -$379,000 -$350,000
Prepaid insurance policy $204,000 $189,000
Plant $4,745,000 $4,745,000
Accumulated depreciation - Plant -$1,898,000 -$1,423,500
Buildings $2,920,000 $2,920,000
Accumulated depreciation - Buildings -$1,168,000 -$1,051,000
Land $1,825,000 $1,825,000
Goodwill (net) $730,000 $730,000
Deferred Tax Asset ? $108,375

Liabilities
Accounts payable $2,774,000 $2,482,000
Provision for warranty $584,000 $438,000
Annual leave payable $401,000 $292,000
Rent received in advance $255,000 $182,000
Deferred Tax Liability ? $0

Additional Information:
▪ a) Rent revenue is tax assessable when it is received in cash
 ▪ b) Government grant is not tax assessable
▪ c) Doubtful debts are tax deductible when the company actually incurs bad debts/write offs
▪ d) For accounting purposes, plant is depreciated using the straight line method at a rate of: 10% per annum
▪ For tax purposes, however, plant is depreciated at a rate of: 15% per annum
▪ e) Depreciation of buildings and entertainment expense are not allowed as tax deductions
▪ f)
Employee entitlements including annual leave are tax deductible when they are paid in cash to the employees
▪ g) Insurance expense is tax deductible when it is paid in cash
▪ h) Warranty expense is tax deductible when it is paid in cash
▪ i) Gross assets for the years ended 30 June 2020 and 2021 are in excess of $25 million and it is expected that gross
operating returns will exceed $50 million in the year ended 30 June 2021

Required:
a) 1)
Using Sheet 2 ("Calculating Taxable income"), calculate the taxable income/tax loss and the current tax liability (if
any) for the financial year ended 30th June 2021. Prepare a journal entry to recognise the current tax liability/tax
loss. The tax rate is 30%. (18 marks)

b) 2)
Using Sheet 3 ("Calculating DTA_DTL 2021"), calculate the Deferred Tax Asset and Deferred Tax Liability balances
as at 30th June 2021 - show all relevant workings. Prepare the deferred tax journal entry for the year ended 30th
June 2021. Note that you are NOT required to prepare a journal entry to offset the Deferred Tax Asset and
Deferred Tax Liability balances. The tax rate is 30%. (23 marks)

c) 3) Assume that by 1 December 2021 there was a change in tax rate from: 30%
to: 27.50%
Required for Q3:

Using Sheet 4 ("Change in Tax Rate") briefly discuss the accounting treatment under accounting standard
AASB112 "Income Taxes" for the Deferred Tax Asset and Deferred Tax Liability balances as at 1 December 2021
given that the company may now be in a lower tax threshold for the 2021-2022 financial year (maximum 100
words in the space provided).

Should you believe an accounting change is necessary, prepare the journal entry to record the effect of the
change in tax rate. (9 marks)
Note that the opening balances of DTA and DTL for the year ended 30 June 2021 are the closing balances for the
year ended 30 June 2020 from part (b)

NOTES: In each of the four sheets, you can only enter data (text or numbers) in cells shaded in yellow.

All marks will be awarded to numbers only, except for the discussion in Part (c).
 Part (a) 18 marks (does not include workings on the right)
Calculate the taxable income/tax loss and the current tax liability (if any) for the financial
year ended 30th June 2021. Prepare a journal entry to recognise the current tax
liability/tax loss. Enter all deductions as negative numbers (use minus signs).

$
Accounting profit before tax $11,680,000

Add Accounting expenses that are different from tax perspective

1 Doubtful debts expense $73,000
2 Depreciation (Plant) $474,500
3 Depreciation (Buildings) $116,000
4 Warranty expense $328,000
5 Annual leave expense $219,000
6 Insurance expense $109,000
7 Entertainment expense $182,500

Deduct Tax expenses (deductions, presented numbers with negative signals)

1 Tax depreciation (Plant) - taxation $711,750
2 Bad debts written off $44,000
3 Leave payment $110,000
4 Insurance paid $124,000
5 Warranty paid $182,000

Deduct Accounting income that is different from tax perspective (present numbers with negative signals)
1 Rent revenue $365,000
2 Government grant received $657,000

Add Assessable/Tax income

1 Rent revenue - taxation $438,000

Taxable income $11,426,250

x tax rate 30.0%
Current tax liability $3,427,875

Journal entry: Dr
Income tax expense $3,427,875
Income tax payable
 Workings ("T" Accounts) - Not Marked

Rent received in advance

Rent revenue $361,000 Beginning balance $180,000
Ending balance $252,000 Cash $433,000

$613,000 $613,000

Allowance for doubtful debts

Bad debts written off $43,000 Beginning balance $346,000

Ending balance $375,000 Doubtful debts expens $72,000
$418,000 $418,000

Provision for warranty

Warranty paid $180,000 Beginning balance $433,000

rs with negative signals) Ending balance $578,000 Warranty expense $325,000
$758,000 $758,000

Annual leave expense

Leave payment $108,000 Beginning balance $289,000

Ending balance $397,000 Annual leave expense $216,000
$505,000 $505,000

Prepaid insurance policy

Cr Beginning balance $187,000 Ending balance $202,000

Insurance paid $123,000 Insurance expense $108,000
$3,427,875 $310,000 $310,000
Part (b) 23 marks (includes all relevant workings)

Calculate the Deferred Tax Asset and Deferred Tax Liability balances as at 30th June 2021 -
show all relevant workings. Prepare the deferred tax journal entry for the year ended 30th
June 2021. Note that you are NOT required to prepare a journal entry to offset the Deferred
Tax Asset and Deferred Tax Liability balances.

Carrying
Tax Base
Amount

Assets $ $
Cash 766,000 766,000
Inventory 1,642,000 1,642,000
Accounts Receivable 4,366,000 4,745,000
Prepaid insuance policy 204,000 0
Plant 2,847,000 425,500
Buildings 1,752,000 0
Land 1,825,000 1,825,000
Goodwill (net) 730,000 0

Liabilities
Accounts Payable 2,774,000 2,774,000
Provision for warranty 584,000 0
Annual leave payable 401,000 0
Rent received in advance 255,000 0
Total Temporary Differences
less Excluded Differences
Building
Goodwill
Net Total Differences
Deferred tax asset
Deferred tax liability
Opening balance
Adjustment for the year

Journal entry: Dr Cr
Defferred tax asset 378,720
Income tax expense 633,113
Deferred tax liability 1,011,833
 as at 30th June 2021 -
or the year ended 30th
ry to offset the Deferred

Deductible
Taxable Temp.
Temp.
Difference
Difference
$ $

379,000
204,000
2,421,500
1,752,000

730,000

584,000
401,000
255,000
5,107,500 1,619,000

(1,734,000)
(722)
3,372,778 1,619,000
485,700
1,011,833
0 106,980
1,011,833 378,720
Part (c) 9 marks

Assume that by 1 December 2021 there was a change in tax rate from 30% to 27.5%.

Briefly discuss the accounting treatment under accounting standard, AASB112 Income Taxes for the
deferred tax asset and deferred tax liability balances as at 1 December 2021 given that the company m
now be in a lower tax threshold for the 2021-2022 financial year (maximum 100 words in the space
provided).

Should you believe an accounting change is necessary, prepare the journal entry to record the effect of
change in tax rate.

Discussion:

The balance at 1st December 2021: Deferred tax liability = 981,383 *27.5/30 =899,601 ($) approximately
So the change in deferred tax liability = 981,383 - 899,601 = 81,782 ($)

The balance at 1st December 2021: Deferred tax asset = 480,600 *27.5/30 = 440,550 ($)
So the change in deferred tax asset = 480,600 - 440,550 = 40,050 ($)

Journal entry: Dr
Deferred tax liability $81,782
Deferred tax asset
Income tax expense
30% to 27.5%.

ASB112 Income Taxes for the

2021 given that the company may
mum 100 words in the space

rnal entry to record the effect of

5/30 =899,601 ($) approximately

30 = 440,550 ($)

Cr

$40,050
$41,732