Reference no: EM13135484

The financial accountant of Carlton Ltd has prepared draft financial statements for the year ended 
30 June 2014 but is unsure about the tax calculations. 
Draft income statement for the year ended 30 June 2014 
Revenue 10,000,000 
Cost of sales -4,000,000 
Gross profit 6,000,000 
Other income 
Royalty income 243,000 
Profit on sale of motor vehicle 68,000 
Grant income 143,000 
454,000 
Expenses 
Depreciation - motor vehicles 315,000 
Depreciation - Plant & equipment 172,000 
Entertaining 18,650 
Annual leave 152,000 
Repairs 255,000 
Bad and doubtful debts 203,000 
Rent 264,000 
Other expenses 3,000,000 
4,379,650 
Profit before tax for the year 2,074,350 
Extracts from the draft statement of financial position as at 30 June 
2014 
2014 2013
Assets 
Cash 803,500 975,000 
Accounts receivable 2,500,000 2,300,000 
Less provision for doubtful debts 143,000 123,000 
Inventory 2,600,000 2,150,000 
Prepayments (rent) 34,750 40,100 
Royalty income due 22,950 45,915 
Deferred tax asset ? ? 
Motor vehicles 1,098,000 1,800,000 
Plant & Equipment 1,033,110 1,205,295 
Goodwill 370,000 373,500 
Liabilities 
Accounts payable 1,980,000 1,800,000 
Accrued annual leave 43,000 34,000 
Provision for repairs 100,000 110,000 
Bank loan 3,500,000 3,580,000 
Current tax payable ? 48,000 
Deferred tax liability ? ? 
Trimester 1, 2014 4 | Page 
Required: 
a) Prepare the current tax work sheet and journal entry/entries to calculate and record 
the current tax for the year ended 30 June 2014 as per AASB 112 "Income 
taxes". (10 marks) 
b) Justify your treatment of entertainment expense and exempt income in the current 
tax work sheet. (5 marks) 
c) Prepare deferred tax work sheet to calculate deferred tax asset and liability as at 30 
June 2013 and 30 June 2014 and prepare journal entry as per AASB 112 " Income 
Taxes" for 30 June 2014 (create columns for account name, carrying amount, tax 
base, deductible temporary difference and taxable temporary difference). 
(15 marks) 
Question 2
Evaluate whether deferred tax assets and deferred tax liabilities arising from AASB
112 " INCOME TAXES" meet the definition and recognition criteria outlined in the
conceptual framework. (10 marks) 
Additional information 
1 The tax rate is: 30% 
2 Grant income is exempt from tax 
3 Entertaining expenses are not allowable deductions for tax 
4 
Excluding revenue and cost of sales other income and expenses are taxed on a cash basis 
5 The carrying value and the tax base of the vehicle sold were: 
Carrying value 430,000 
Tax base 344,000 
6 Tax depreciation for the year was: 
Motor vehicles 400,000 
Plant & Equipment 200,000 
7 The tax base of the assets at the start of the current year were: 
Motor vehicles 1,600,000 
Plant & Equipment 1,060,000