Accounting Policies, Change in Accounting Estimates and Errors

Solution – 1
Computation of tax payable for the year ended 30 June, 2016
Particulars Amount
Accounting Profit before tax $ 190,750
Add: Expenses not allowed for deduction
Depreciation - equipment $ 40,000
Depreciation - motor vehicles $ 15,000
Entertainment expense $ 4,500
Annual leave $ 13,000
Doubtful debts expense $ 6,000
Insurance expense $ 10,000
Rent expense $ 26,000
Warranty expense $ 8,500
Less: Expenses/Incomes allowed/taxable for deduction
Income
Government grant $ 30,000
Depreciation as per tax
- Equipment $ 60,000
- Motor vehicles $ 12,000
Doubtful debts written off $ 2,000
Expenses paid
Annual leave $ 2,000
Warranty expense $ 1,600
Rent $ 20,000
Insurance expense $ 13,000
Net taxable income $ 173,150
Net tax payable $ 51,945
Note: It is assumed that the doubtful debts are taxable, when they are written off.
Deferred tax worksheet for the year ended 30 June, 2018
Accounting
Carrying amount
Tax Carrying
amount Temporary
Differences
Assets

Allowance for doubtful debts $ 4,000 $ - $ 4,000
Prepaid insurance $ 3,000 $ - $ (3,000)
Property, plant and equipment (refer WN-
1) $ 405,000 $ 388,000 $ (17,000)
Liabilities
Provision for annual leaves $ 11,000 $ - $ 11,000
Rent payable $ 6,000 $ 6,000
Provision for warranties $ 6,900 $ - $ 6,900
Total temporary diff. $ 7,900
Deferred tax asset /(liability) @ 30% $ 2,370
WN-1: Calculation of carrying amount of PPE as per tax :
Equipment Motor Vehicles
Cost $ 400,000 $ 60,000
Less: Depreciation for the year $ 60,000 $ 12,000
Tax carrying amount $ 340,000 $ 48,000
(b) Journal entry
(a) Deferred tax asset Dr. $ 2,370
To Income tax expense Cr. $ 2,370
(b) Current tax expense Dr. $ 51,945
To Current tax lability Cr. $ 51,945

Solution – 2
Journal Entries
Date Particulars Debit Credit
01-Jul-13 Equipment $ 800,000
To cash $ 800,000
(Being purchase of equipment recorded)
30-Jun-14 Depreciation $ 152,000
To Accumulated depreciation $ 152,000
(Being depreciation for the year recorded)
01-Jul-14 Accumulated depreciation $ 152,000
To Equipment (refer Wn-1) $ 70,000
To Revaluation Surplus $ 82,000
(Being equipment recorded at fair value)
30-Jun-15 Depreciation (refer Wn-1) $ 115,000
To Accumulated depreciation $ 115,000
(Being depreciation for the year recorded)
30-Jun-16 Depreciation $ 115,000
To Accumulated depreciation $ 115,000
(Being depreciation for the year recorded)
30-Jun-16 Accumulated depreciation $ 230,000
Revaluation Surplus $ 82,000
Impairment loss $ 18,000
To Equipment (refer Wn-1) $ 330,000
(Being equipment recorded at fair value)
30-Jun-16 Depreciation $ 28,750
To Accumulated depreciation $ 28,750
(Being depreciation recorded up to the date of sale)
30-Sep-16 Bank $ 390,000
Accumulated depreciation $ 28,750
To Equipment $ 400,000
To Gain on sale of equipment (refer Wn-1) $ 18,750
(Being equipment sold)