Reference no: EM132745646

Question - In the current year ending 30th June 2019 AA Ltd has recorded an accounting profit of $800,500. The following information is extracted from AA's financial statement for the year 2019:

As at 30th June 2019

2018 2019

Assets

Inventories 120,000 140,000

Accounts receivables 420,000 350,000

Allowance for doubtful debts (21,000) (16,000)

Prepaid insurance 25,000 22,000

Equipment 300,000 300,000

Accumulated depreciation (60,000) (120,000)

Intangible asset 300,000 300,000

Accumulated amortization (100,000) (200,000)

Goodwill 140,000 140,000

Accumulated impairment (2,000) (5,000)

Liabilities

Service revenue received in advance 17,000 12,500

Warranty payable 35,000 40,000

Provision for long service leave 28,000 35,000

Additional information is given below:

The value of Inventory purchased in this year is $200,000. The deduction is allowed when inventory is sold.

Bad debts are deductible when they are written off. $27,000 had been actually written off as bad debts during the year.

The amounts paid for insurance were claimed as deductions. $21,000 was paid to buy the insurance during the year.

The equipment is depreciated on a straight-line basis over 5 years for accounting purpose and diminishing-value method is adopted for taxation purpose with applied 20% depreciate rate. The equipment is not expected to have any residual value. Until the end of year 2019, there is no new purchase or disposal of the equipment.

The intangible asset shown in the balance sheet had been internally developed three years ago. Developing cost was deducted when the cost incurred.

Cash is received in advance before the services are rendered. Income from the services is taxed when cash is received. The cash received in the year 2019 is $9,000

Impairment of goodwill is not deductible.

Warranty expense is not deductible until cash is actually paid. The cost incurred in the year 2019 for the warranty claims was 60,000.

$20,000, paid for the long service leave, is deductible when it is paid.

There are no other items that cause differences between accounting and taxable profit.

Required -

(1) Calculate the amount of taxable profit for the year 2019.

(2) Draw the entry for the current tax expense if the tax loss for 2018 was $600,000 and that the recognition criteria was satisfied in 2018. The tax rate is 30%. Assume the tax profit for 2019 is 2,000,000.

(3) Prepare a journal entry to record the recoupment of the tax loss and the current tax payable for 2019.