Week 3 Tutorial Solutions - Fiancial Acounting

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Week 3: Tutorial questions to be attempted before class

Question 1
Application & Analysis Exercise: 12.4 Part 1 (Loftus et al, 2020, Chapter 12)
Magpalitan Ltd recorded an accounting profit before tax of $100 000 for the year ended 30
June 2025. Included in the accounting profit were the following items of revenue and
expense.

For tax purposes the following applied.

Required
1. Use a current tax worksheet to calculate the current tax liability for the year ended 30
June 2025. Prepare the journal entry to record current tax.

MAGPALITAN LTD
Current tax worksheet
for year ended 30 June 2025
$ $

Accounting profit 100 000

Add:

Entertainment expense 2 000

Depreciation expense – furniture 17 000

Rent received 3 000 22 000

Deduct:

Rent revenue 2 500

Depreciation – furniture (tax)* 25 500 (28 000)

Taxable profit 94 000

Current tax liability @ 30% 28 200

*17 000 x 0.15/0.10

Income tax expense (current) Dr 28 200


Current tax liability Cr 28 200
(Current tax entry)

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Question 2
Application & Analysis Exercise: 12.13 Part 1 (Loftus et al, 2020, Chapter 12). Amendments
have been made, use only the information below instead of what is in the textbook.
Bondi Ltd’s accounting profit before tax for the year ended 30 June 2024 was $150 000 and
included the following items of revenue and expenses:
Royalty revenue $ 20 000
Bad debts expense 21 000
Insurance expense 18 000
Depreciation expense – equipment 52 000
Depreciation expense – buildings 20 000
Accrued expenses 60 000
Warranty expense 45 000

At 30 June 2023 and 30 June 2024, the company’s draft statements of financial position
(extracts) showed the following balances.
2023 2024
Assets
Accounts receivable 300  000 420  000
Allowance for doubtful debts (15  000) (21  500)
Prepaid insurance 20  000 15  000
Equipment 200  000 260  000
Accumulated depreciation — equipment (100  000) (152  000)
Buildings 400  000 400  000
Accumulated depreciation — buildings (140  000) (160  000)
Liabilities
Accrued expenses 120  000 90  000
Warranty payable 70  000 50  000
Current tax liability 9  000

Additional information
1. The company tax rate is 30%.
2. The equipment is depreciated on a straight-line basis over 5 years for accounting
purposes and over 4 years for taxation purposes. The equipment is not expected to have
any residual value. The only movement in the equipment account during the year ended
30 June 2024 was a result of Bondi Ltd acquiring new equipment on 1 July 2023.
3. The buildings are depreciated on a straight line basis over 20 years for accounting
purposes and are not expected to have any residual value. Depreciation of buildings is
not allowed to be claimed as a deduction for tax purposes. There is no movement in the
Buildings account during the year ended 30 June 2024.
Required
Prepare the current tax worksheet and the journal entry to recognise current tax at 30
June 2024.

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Calculations for tax deductions:

 Bad debts written off = beginning balance – ending balance + bad debts expense
= 15 000 – 21 500 + 21 000 = $14 500
OR
Allowance for doubtful debts
$ $
Bad debts written off 14 500 Opening balance 15 000
Ending balance 21 500 Expense 21 000
36 000 36 000

 Insurance paid = ending balance – beginning balance + insurance expense


= 15 000 – 20 000 + 18 000 = $13 000
OR
Prepaid Insurance
$ $
Opening balance 20 000 Expense 18 000
Insurance paid 13 000 Ending balance 15 000
33 000 33 000

 Depreciation equipment = 260 000/4 = $65 000

 Accrued expenses paid = Beginning balance – ending balance + accrued expenses


= 120 000 – 90 000 + 60 000 = $90 000
OR
Accrued Expenses
$ $
Accrued expenses paid 90 000 Opening balance 120 000
Ending balance 90 000 Expense 60 000
180 000 180 000

 Warranty paid = Beginning balance – ending balance + warranty expense


= 70 000 – 50 000 + 45 000 = $65 000
OR
Warranty Payable
$ $
Warranty paid 65 000 Opening balance 70 000
Ending balance 50 000 Expense 45 000
115 000 115 000

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BONDI LTD
Current tax worksheet
for year ended 30 June 2024
$ $

Accounting profit 150 000

Add:

Bad debts expense 21 000

Insurance expense 18 000

Depreciation expense – equipment 52 000

Depreciation expense – buildings (non-deductible) 20 000

Accrued expense 60 000

Warranty expense 45 000 216 000

Deduct:

Royalty revenue 20 000

Bad debts written off 14 500

Insurance paid 13 000

Depreciation – equipment (tax) 65 000

Accrued expenses paid 90 000

Warranty paid 65 000 ( 267 500)

Taxable profit 98 500

Current tax liability $29 550

Income tax expense (current) Dr 29 550


Current tax liability Cr 29 550
(Current tax entry)

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Question 3
Application & Analysis Exercise: 12.17. (Loftus et al, 2020, Chapter 12).
The profit before tax, as reported in the statement of profit or loss and other
comprehensive income of Miami Ltd for the year ended 30 June 2024, amounted to $60
000, including the following revenue and expense items:

An extract of the statement of financial position of the company at 30 June 2024 showed
the following assets and liabilities.

Assets 2023 2024


Accounts receivable 48  000 50  000
Allowance for doubtful debts (4  000) (5  500)
Office supplies 2  200 2  500
Plant 50  000 50  000
Accumulated depreciation — plant (21  000) (26  000)
Buildings 30  000 30  000
Accumulated depreciation — buildings (14  000) (14  800)
Liabilities
Provision for long service leave 4  500 6  000
Provision for annual leave 3  000 4  000
Rent received in advance 2  000 2  500

Additional information
 Depreciation on plant for tax purposes for the year ended 30 June 2024 amounted to
$7500. Depreciation on buildings is not allowed to be claimed as a deduction for tax
purposes.
 The tax rate is 30%.

Required:
Prepare a current tax worksheet and the journal entry to recognise the company’s current
tax liability as at 30 June 2024.

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Calculations for tax deductions and taxable revenue:
Bad debts written off: beginning balance – ending balance + bad debts expense
= 4 000 – 5 500 + 4 000 = $4 500
OR
Allowance for doubtful debts
$ $
Bad debts written off 4 500 Opening balance 4 000
Ending balance 5 500 Expense 6 000
10 000 10 000

Annual leave paid: Beginning balance – ending balance + annual leave expense
= 3 000 – 4 000 + 3 000 = $2 000
OR
Provision for annual leave
$ $
Annual leave paid 2 000 Opening balance 3 000
Ending balance 4 000 Expense 3 000
6 000 6 000

Long service leave paid: Beginning balance – ending balance + LSL expense
= 4 500 – 6 000 + 1 500 = $0
OR
Provision for long service leave
$ $
Long service leave paid 0 Opening balance 4 500
Ending balance 6 000 Expense 1 500
6 000 6 000

Rent received: ending balance – opening balance + rent revenue


= 2 500 – 2 000 + 3 000 = $3 500
OR
Rent received in advance
$ $
Rent revenue 3 000 Opening balance 2 000
Ending balance 2 500 Rent received 3 500
5 500 5 500

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MIAMI LTD
Current tax worksheet
for year ended 30 June 2024
$ $
Accounting profit 60 000
Add:
Bad debts expense 6 000
Depreciation expense – plant 5 000
Annual leave expense 3 000
Long service leave expense 1 500
Entertainment costs 1 800
Depreciation expense – buildings 800
Rent received 3 500 21 600
Deduct:
Rent revenue 3 000
Bad debts written off 4 500
Depreciation – plant (tax) 7 500
Annual leave paid 2 000 (17 000)
Taxable profit 64 600
Current tax liability (30%) 19 380

Income tax expense (current) Dr 19 380


Current tax liability Cr 19 380
(Current tax entry)

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Question 4
An amended past exam question (McCombie, 2018, amended 2022)

For the year ended 30 June 2018, Lilly Ltd reported a profit before tax of $10,000. Included
in the profit were the following income and expense items:

Interest revenue $50,000


Rent revenue $25,000
Bad debts expense $10,000
Depreciation expense – plant $21,000
Long service leave expense $20,000

The draft Statements of Financial Position of Lilly Ltd at 30 June 2018 and 30 June 2017
included the following assets and liabilities:

2018 2017
$
Accounts receivable 70,000 50,000
Allowance for doubtful debts (10,000) (5,000)
Interest receivable 20,000 25,000
Plant 210,000 210,000
Accumulated depreciation – plant (63,000) (42,000)
Rent revenue received in advance 8,000 4,000
Provision for long service leave 30,000 40,000

Additional information:
 For accounting purposes plant is depreciated using the straight line method over 10
years. For tax purposes plant is depreciated using the straight line method over 3 years.
 The company tax rate is 30%.
Required:
Prepare the current tax worksheet and the journal entry to recognise current tax at 30
June
2018.

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Calculations for tax deductions and taxable revenue:

 Interest received = beginning balance – ending balance + interest revenue


= 25 000 – 20 000 + 50 000 = $55 000
OR
Interest Receivable
$ $
Opening balance 25 000 Interest received 55 000
Interest revenue 50 000 Ending balance 20 000
75 000 75 000

 Rent received = ending balance – beginning balance + rent revenue


= 8 000 – 4 000 + 25 000 = $29 000
OR
Rent received in advance
$ $
Rent revenue 25 000 Opening balance 4 000
Ending balance 8 000 Rent received 29 000
33 000 33 000

 Bad debts written off = beginning balance – ending balance + bad debts expense
= 5 000 – 10 000 + 10 000 = $5 000
OR
Allowance for doubtful debts
$ $
Bad debts written off 5 000 Opening balance 5 000
Ending balance 10 000 Bad debt expense 10 000
15 000 15 000

Depreciation for tax = 210,000/3 = 70,000

 LSL paid = Beginning balance – ending balance + LSL expense


= 40 000 – 30 000 + 20 000 = $30 000
OR

Provision for long service leave


$ $
Long service leave paid 30 000 Opening balance 40 000

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Ending balance 30 000 LSL expense 20 000
60 000 60 000

Lily Ltd
Current tax worksheet
for year ended 30 June 2018
$ $
Accounting profit 10 000
Add:
Bad debts expense 10 000
Long service leave expense 20 000
Depreciation expense - plant 21 000
Interest received 55 000
Rent received 29 000 135 000
Deduct:
Interest revenue 50 000
Rent revenue 25 000
Bad debts written off 5 000
Long service leave paid 30 000
Depreciation – plant (tax) 70 000 (180 000)

Tax Loss (35 000)

Deferred tax asset @30% $10 500

Dr Deferred Tax Asset 10 500


Cr Income tax expense (current0 10 500
(Current tax entry)

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Group Activities
Activity 1

Coles Group Ltd is an entity that must prepare general purpose financial reports (GPFR) and
apply AASB112 Income Taxes.
Required:
Find the annual report for Coles Group Limited 2020. Using the information for Coles Group
Ltd 2020:
Show how Coles have arrived at the total income tax expense for 2020 of $341 million.
What would the journal entry for the full year have been to record the current income tax
expense. (all figures below in $ Millions)
Income Tax Expense = 461 Dr (current) – 79 Cr (deferred) - other items Cr (36 + 5) = 341
Income tax expense Dr 461
Current tax liability Cr 461
(Current tax expense)
Activity 2
The accounting loss before tax of Pup Ltd for the year ended 30 June 2019 was ($10,000)
and included the following income and expense items:

Rent revenue $45,000


Bad debts expense $12,000

Depreciation expense – plant $19,500


Insurance expense $22,000
Long service leave expense $33,000
Extract draft statement of financial position as at 30 June 2019

2019 2018

Allowance for doubtful debts $14,000 $16,000


Prepaid insurance $13,000 $10,000

Rent receivable $25,000 $20,000


Plant $130,000 $130,000

Accumulated depreciation - plant ($58,500) ($39,000)


Provision for long service leave $22,000 $23,000

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Additional information:
– For accounting purposes plant is depreciated at 15% straight line; for tax
purposes plant is depreciated at 20% straight line
– The tax rate is 30%

Required:
Determine the taxable profit/(loss) of Pup Ltd for 30 June 2019 and prepare the necessary
journal entry for current tax.
Working out:

 Rent received = beginning balance – ending balance + rent revenue


= 20 000 – 25 000 + 45 000 = $40 000
OR
Rent Receivable
$ $
Opening balance 20 000 Rent received 40 000
Rent revenue 45 000 Ending balance 25 000
65 000 65 000

 Bad debts written off = beginning balance – ending balance + bad debts expense
= 16 000 – 14 000 + 12 000 = $14 000
OR
Allowance for doubtful debts
$ $
Bad debts written off 14 000 Opening balance 16 000
Ending balance 14 000 Bad debt expense 12 000
28 000 28 000

Depreciation for tax = 20% of $130,000 = $26,000

 Insurance paid = ending balance – beginning balance + insurance expense


= 13 000 – 10 000 + 22 000 = $25 000
OR
Prepaid Insurance
$ $
Opening balance 10 000 Expense 22 000
Insurance paid 25 000 Ending balance 13 000
35 000 35 000

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 LSL paid = Beginning balance – ending balance + LSL expense
= 23 000 – 22 000 + 33 000 = $34 000
OR

Provision for long service leave


$ $
Long service leave paid 34 000 Opening balance 23 000
Ending balance 22 000 LSL expense 33 000
56 000 56 000

Pup LtD
Current tax worksheet
for year ended 30 June 2019
$ $
Accounting loss (10 000)
Add:
Bad debts expense 12 000
Depreciation expense 19 500
Insurance expense 22 000
LSL expense 33 000
Rent received 40 000 126 500
Deduct:
Rent revenue 45 000
Bad debts written off 14 000
Depreciation (tax) 26 000
Insurance paid 25 000
LSL paid 34 000 (144 000)
Tax Loss (27 500)
Deferred tax asset (30%) $8 250

Dr Deferred Tax Asset (DTA) 8 250


Cr Income Tax Expense (current) 8 250
(Current tax expense)

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