Reference no: EM132983018

The accounting profit before tax for the year ended 30 June 2016 for Brad Ltd amounted to $30 000 and included:

Depreciation - equipment (25%) $ 25 000

Rent revenue 18 000

Royalty revenue (non-taxable) 4 000

Doubtful debts expense 5 000

Entertainment expense (non-deductible) 3 000

Annual leave expense 2 000

Insurance Expense 8 000

The draft statement of financial position at 30 June 2016 contained the following assets and liabilities.

                                2015                        2016

Assets

Cash                     $ 9 500           $ 11 500

Prepaid Insurance      6 000             4 000

Receivables               14 000            12 000

Allowance for doubtful debts (8 000)    (7 000)

Inventories                    22 000         25 000

Rent receivable                 6 000           7 500

Equipment                        100 000        100 000

Accumulated depreciation - equipment (25 000)        (50 000)

Deferred tax asset                 3 000            ?

                                       127 500          103 000

Liabilities

Accounts payable              18 000            12 400

Provision for annual leave        4 000              5 000

Deferred tax liability                 7 000             ?

                                            29 000           19 400

Additional information

(a) The company can claim a tax deduction of $35 000 (35%) for depreciation on equipment. The equipment is two years old and straight line depreciation is used.

(b) The company tax rate is 30%.

(c) The company has not paid any tax this year.

Required

Problem 1. Prepare the current tax worksheet and the journal entry to recognize the current tax as at 30 June 2016.

Problem 2. Prepare any necessary journal entries to adjust the deferred tax accounts at 30 June 2016. The use of the deferred tax worksheet is optional.