Reference no: EM133702091
Corporate Accounting
Assignment One Question
At 30 June 2023 Maximum Ltd provided the following information from its balance sheet about its assets and liabilities
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Assets
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($000)
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Computers at cost
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300
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Accumulated depreciation
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(60)
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|
Accounts receivable
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100
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Allowance for doubtful debts
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(10)
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Liabilities
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|
|
Provision for warranty costs
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30
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Provision for employee benefits (LSL)
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20
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Maximum Ltd depreciates computers over five years in its accounting records but over three years for tax purposes. The straight-line method is used.No amounts were paid for long serviceleave or warranty claims during the year.
The following information is available for the following year, the year ending 30 June 2024.
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Statement of profit or loss for Maximum Ltd for the year ending 30 June 2024 $000
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Sales
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4 000
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Cost of goods sold
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(1 800)
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Depreciation expense
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(60)
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Warranty expense
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(90)
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Bad and doubtful debts expense
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(25)
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Other expenses
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(1 375)
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Profit before tax
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650
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During the year, Maximum Ltd wrote off bad debts amounting to $15 000. Warranty costs of $70 000 were paid during the year. No amounts were paid for long serviceleave during the year. The following information is extracted from the statement of financial position at 30 June 2024:
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Assets
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$000
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Accounts receivable
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120
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Allowance for doubtful debts
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(20)
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Liabilities
|
|
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Provision for warranty costs
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50
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Provision for employee benefits (LSL)
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30
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There was no acquisition of plant and equipment during the year.
The tax rate as at 30 June 2023 and 30 June 2024 was 30 per cent.
Required - Calculation Questions
1. Calculate the amount of each of Maximum Ltd's temporary differences, if any, at 30 June 2023, and state whether it is deductible or taxable. Present your answer using the following table format (show workings where relevant):
Account Carrying amount Tax base Temporary Difference
2. What is the balance of the deferred tax liability and deferred tax asset as at 30 June 2023?
3. Complete a worksheet showing the deferred tax balances for the year ended 30 June 2024.Hint: the opening balances calculated for the previous year have to be deducted.
4. Complete the relevant general journal entries to record current tax and deferred tax for the year ending 30 June 2024.
Written Questions - Independent of parts 1-4 above.
5. In your own words, explain the meaning of ‘the tax base of an asset/liability' and how this differs from the asset's/liability's carrying amount.
6. Calculate the carrying amount and the tax base of the following assets and liabilities at 30 June 2024 using the following table (for each part, briefly explain, either showing your workings or providing a written explanation, how you determined the tax base):
Account Carrying amount Taxable amount Deductible amount Tax base
i. In July 2023, the company capitalised $750 000 incurred in designing improved hearing aids. Expenditure on research and development is deductible in full for tax purposes when paid but amortised over five years for accounting purposes.
ii. Borrowing costs associated with financing land held for resale have been capitalised. The borrowing costs paid in June 2024 amounted to $50 000 and will be expensed for accounting purposes when the land is sold.
iii. The closing balance of the Allowance for doubtful debts at 1 July 2024 was $7 500, after accruing a further $4 500 and writing off $6 000 as bad debts during the year ended 30 June 2024. Accounts receivable at 30 June 2023 was $213 000 and the balance at 30 June 2024 was $250 000. Prepare the Allowance for doubtful debts T account.
iv. The opening balance of the prepaid insurance at 1 July 2023 is $30 000. The annual premium of $144 000 was paid in March 2024, with $138 000 expensed during the year ended 30 June 2024. Prepare the Prepaid insurance T account.