Reference no: EM132344107
Question :
Kingston Ltd commences operations on 1 July 2015. One year after the commencement of its operations (30 June 2016) the entity prepares the following information, showing both the carrying amounts for accounting purposes and the tax bases of the respective assets and liabilities.
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Carrying values (S)
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Tax bases(S)
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Assets
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Accounts receivable (net)
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45
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000
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60
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000
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Prepaid insurance
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16
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000
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Inventory
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35
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000
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35
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000
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Plant-net
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444
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000
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370
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000
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Land
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600
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000
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600
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000
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Liabilities
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Accounts payable
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55
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000
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55
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000
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Provision for warranty
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18
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000
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-
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Loan payable
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250
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000
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250
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000
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Other information
• After adjusting for differences between tax rules and accounting rules, it is determined that the taxable income of Kingston Ltd is $550 000.
• Doubtful debts expense for the year was $15 000 and no debts have been written off.
• Insurance paid for the year was $22 000.
• An item of plant is purchased at a cost of 5555 000 on 1 July 2015. For accounting purposes, it is expected to have a life of five years; however, for taxation purposes it can be depreciated over three years. It is not expected to have any residual value.
• None of the amounts accrued in respect of warranty expenses has actually been paid.
• The tax rate is 30 per cent.
Required:
(a) Assuming there are no permanent differences for tax purposes, determine the amount of accounting profit before tax for the year ending 30 June 2016 and hence determine tax expense and tax payable.
Calculation of Current Tax Consequences for Y/E 30 June 201.6 (000)
Accounting Profit Before Tax ) Tax Expense
*30% =
Temporary differences:
Tax payable
Taxable Income * 30% =
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