Reference no: EM133190195

Question 1 - MQE Ltd have the following transactions that have occurred during the 2021 financial year and is looking at the impacts these transactions may have on their deferred asset (DTA) and/or deferred tax liability (DTL) accounts. The opening balance of the DTA was $10,000 and the DTL $1,500. You have been asked to provide applicable journal entries (including narrations) for these transactions as well as provide a schedule of temporary differences and calculate any DTA's and/or DTLs and applicable income tax expenses.

a. Transaction 1 - MQE Ltd purchased architecturally designed office furniture from Design Studios Pty Ltd in the amount of $240,000 on 1 July 2021. An amount of $90,000 was paid towards this purchase price by using the cash reserves of the business. The company's bank is financing the remainder. It is estimated that this office furniture will have a useful life of 6 years with no salvage value. The useful life of office furniture from the Australian Taxation Office's perspective is estimated to be 5 years.

An expert was asked to value the office furniture at the end of the financial year, as the company believes that the office furniture is now worth much more as the company they purchased from no longer makes these designs. A fair value of the office furniture came in at a valuation of $220,000.

b. Transaction 2 - MQE Ltd has a development costs account in their Balance sheet as of the 30 June 2022 of $50,000. These development costs were claimed as a deduction in the prior fiscal year.

c. Transaction 3 - The provision for annual leave is recorded in the accounts as of 31 May 2022 at $35,000.

During the month of June, an accrual for June's entitlement for annual leave totaled $7,000. Employees who took and were paid leave in June amounted to $8,000.

d. Transaction 4 - At 30 June 2021 the amount recorded in the Balance sheet for goodwill amounted to $500,000. The goodwill was impaired by 10% in 2022 and this needs to be recorded in the financial statements.

e. Transaction 5 - MQE Ltd rents out part of one of its warehouses to Burrows Pty Ltd. Burrows paid rent for the next quarter in advance in the amount of $30,000.

Question 2 - MQE Ltd has leased a new van from Mercedes at Robina at the cost of $65,000 on 1 July 2021. This new van will be used to move inventory from the various warehouses on the Gold Coast. The lease payments required by MQE Ltd to pay each year are $22,500. Additional costs incurred by MQE Ltd to get the van up and running for MQE Ltd to use included the MQE Ltd logo on the side panels and back of the van as well as window tinting. The cost incurred was $2,500. The implicit interest rate on the lease is 7%. MQE plans on keeping the van at the end of the lease term of 5 years, this has not been agreed upon as yet with Mercedes Robina. Mercedes Robina believes that this is the useful life of the leased asset to be 6 years. Record the relevant journal entries for MQE Ltd for the 2022 financial year. What is the closing lease liability as at 30 June 2022? (Ensure that you show all your workings).