Calculation of Taxable Income

Solution-1
(a) Calculation of taxable income for the year ended 30 June, 2017
Particulars Amount ($)
Profit before tax 3,500,000
Add:
Goodwill impaired 200,000
Depreciation as per accounting (refer WN-1) 160,000
Provision for long service leave 105,000
Provision for doubtful debts 45,000
Provision for warranty expense 50,000
Entertainment expense 75,000
R&D expense (120,000/5/2) 12,000 647,000
Less:
Depreciation as per Tax (refer WN-1) 200,000
Long service leave paid 90,000
Actual bad debts written off 65,000
Warranty expense paid 45,000
R&D expense paid 150,000 550,000
Taxable income 3,597,000
Tax @ 30% 1,079,100
WN-1 Calculation of depreciation
Plant & Equipment Accounting Tax
Cost of purchase 800,000 800,000
Rate of Dep 20% 25%
Date of purchase 01-Jul-15 01-Jul-15
Dep for the FY 2015-16 160,000 200,000
Carrying value 30 June, 2016 640,000 600,000
Dep for the FY 2016-17 160,000 200,000
Carrying value 30 June, 2017 480,000 400,000

Taxation worksheet for Green Bay Ltd for the year ended 30 June 2017
Item
Statement of
financial
position ($)
Tax
bases ($)
Deductible
temporary
differences ($)
Taxable
temporary
differences
($)
Tax
expense
($)
Current
tax
payable
($)
ASSETS
Cash 250,000 250,000 -
Inventory 350,000 350,000 -
Accounts receivable (net)
(refer WN-2) 740,000 770,000 30,000 (9,000)
Plant and equipment (net) 480,000 400,000 80,000 24,000
Research and development
cost 108,000 - 108,000 32,400
Goodwill 600,000 - 600,000 180,000
2,528,000
LIABILITIES
Payables 780,000 780,000 - - -
Provision for long service
leave 115,000 - 115,000 - (34,500)
Provision for warranty
expense 80,000 - 80,000 - (24,000)
Loan 1,100,000 1,100,000 - - -
2,075,000
NET ASSETS 453,000
Temporary difference at the end of the period 225,000 788,000
Less: Prior period balance (49,500) -
Movement for the period - -
Tax effect at 30% 67,500 236,400
Tax taxable income @ 30% 1,079,100
Income tax adjustments 18,000 236,400

WN-2: Calculation of balance in Accounts Receivable in tax books as on 30 June, 2017
In Accounting Books
Accounts Receivable
Particulars Amount ($) Particulars Amount ($)
Opening balance 320,000 Bad debts w/o 65,000
sales 485,000 Closing balance 740,000
805,000 805,000
Allowance for doubtful debts
Particulars Amount ($) Particulars Amount ($)
Bad debts w/o 65,000 Opening balance 30,000
Closing balance 10,000 Provision created 45,000
75,000 75,000
In Tax Books
Accounts Receivable
Particulars Amount ($) Particulars Amount ($)
Opening balance 350,000 Bad debts w/o 65,000
Sales 485,000 Closing balance 770,000
835,000 835,000
(b) Journal Entry required by AASB 112 Income Taxes for the year ended 30 June 2017
Date Account Titles Debit Credit
30 June, 2017 Income Tax expense 1,079,100
To Income tax payable 1,079,100
(To record current tax liability)
30 June, 2017 Deferred tax expense 236,400
To Deferred tax liability 236,400
(To record deferred tax liability)
30 June, 2017 Deferred tax asset 18,000
To Deferred tax expense 18,000
(To record deferred tax asset)

(c) Journal Entries to reflect this change of tax rate on 1 July 2017
If the tax rate changes from 30% to 25% then the balances of deferred tax asset and liabilities will change
to the extent of change in the rate of tax. In that case, the entries will be:
Date Account Titles Debit Credit
30 June, 2017 Deferred tax liability (788,000*5%) 39,400
To Deferred tax expense 39,400
(To record change in rate of tax by 5%)
30 June, 2017 Deferred tax expense ((225,000*25%)-49,500) 6,750
To Deferred tax asset 6,750
(To record change in rate of tax by 5%)