Reference no: EM132946024
Question - Bill Ltd profit before income tax for the year ended 30 June 2021 is $500,000 including the following expenses
Depriciation of plant $35,000
Impairment of Goodwill 13,000
Long-service leave 30,000
Holiday pay 20,000
Doubtful debts 55,000
Entertainment Costs 15,000
Depreciation of buildings 5,000
The statements of financial position of the company at 30 June 2020 and 2021 showed the following information:
Assets 2020 2021
Cash $73,000 $82,000
Inventory 127,000 158,000
Receivables 430,000 585,000
Allowance for doubtful debts (20,000) (40,000)
Plant 350,000 350,000
Acc Depreciation- Plant (70,000) (105,000)
Buildings 100,000 100,000
Acc Depreciation- Buildings (25,000) (30,000)
Goodwill (net) 63,000 50,000
Deferred tax asset 28,000 ?
Liabilities
Payables $247,000 $265,000
Long-service leave payable 30,000 50,000
Holiday pay payable 20,000 30,000
Deferred Tax liability 8,000 ?
Additional Information
a. An item of plant is purchased at a cost of $350 000 on 1 July 2018. For accounting purposes it is expected to have a life of ten years; however, for taxation purposes it can be depreciated over 7 years.
b. For taxation purpose, the depreciation of building is not allowed.
c. Total bad debts written off for the year were $35,000.
d. Amount paid for long-service leave and holiday pay during the year ended 30 June 2021 were $20,000 and $15,000 respectively.
e. Income tax rate were
For year ended 30 June 2020 and previous years 33% For year ended 30 June 2021 25%
Requirement -
1. Calculate the amount of current income tax expense, current tax liability, deferred income tax assets, and deffered income tax liability by using worksheets for the year ended 30 June 2021.
2. Prepare the balance day journal entries for income tax, including the change in the tax rate and the deffered tax asset and deferred tax liability accounts.
3. How will a change in the tax rate impact on the balances of deferred tax assets and deferred tax liabilities? Should any such change be reflected in the reported profit of the reporting entity when the tax rate changes?