Reference no: EM132479806

Milk Park Ltd is retailing company which commenced operations on the 1st of July 2018. At the financial year end 30thJune 2019, the firm furnished its statement of comprehensive income and the statement of financial position as follows:

Statement of Comprehensive Income for the year ended 30 June 2019

Sales Revenue                       1,144,000

Cost of sales                        (475,500)

Gross profit                            668,500

Other income: interest income   85,000

                                            753,500

Less operating expenses:

Administrative expenses           143,320

Wages and salaries                  80,180

Warranty expenses                27,000

Long service leave expense    55,000

Doubtful debt                     18,000

Insurance expense             65,400

Utilities expenses               88,500

Depreciation expense         94,000

                                      571,400

Profit before tax                 182,100

Statement of Financial Position as at 30th June 2019

Non-current asset:

Plant and Machinery - cost                564,000

Less accumulated depreciation          94,000

                                                   470,000

Land - fair value                           125,000

                                                595,000

Current assets:

Cash                                           105,000

Inventory                                       65,000

Account receivable - net                  230,000

Insurance prepaid                           31,700

                                                    431,700

Current Liabilities:

Account payable                            156,000

Accrued wages and salaries            28,200

Provision for warranty expenses       27,000

Provision for long service leave        15,000

Rent income paid in advance          38,500

                                              (264,700)

Net working capital                    167,000

                                                   762,000

Non-current liabilities:

Loan payable                                 (163,500)

Net assets                                     598,500

Additional Information

1.During the financial year ended 30th June 2019, Milk Park Ltd received rental revenue of 38,500 which relates to the following financial year. The related revenue is taxable by the ATO when the amounts are received.

2. All administration and salaries expenses incurred have been paid except for $28,200 accrued wages and salaries as at year end. Wages and salaries expense are deductible for tax purposes when paid.

3. The warranty expenses incurred during the period remained unpaid as at year end. Warranty expenses are allowed for deduction when paid for tax purposes.

4. Out of $55,000 incurred as expense for long service leave, only $40,000 had been paid as at year end. This is allowed for deduction only when actually paid.

5. Only bad debts are allowed as deductibles for tax purposes.

6. Insurance expense charged for the period represents the portion of the total prepaid amount which had been used during the year. $31,700 of the prepaid amounts has not been used as at year end. Insurance expenses are deductible when paid.

7. The plant and machinery are depreciated over six (6) years for accounting purposes while its useful life is estimated to be four (4) years for tax purposes.

8. The applicable tax rate for Milk Park Ltd is 30%

9. Land had an initial cost price of $100,000 before it was revalued to its fair value at end year.

Required:

Question a) Prepare the reconciliation to determine taxable income.

Question b) Complete the Deferred Tax Worksheet and journal entries to adjust deferred tax accounts and recognise current tax at 30th June 2019