Module 6 Assessment: E-Surfboards Financial Report Analysis

This assignment analyzes the financial report of E-Surfboards Limited, focusing on temporary differences, deferred tax liabilities and assets, and taxable income calculations. It provides a detailed breakdown of the company's financial position as of June 30, 2014, and the subsequent year ending June 30, 2015. The assignment calculates the amount of each temporary difference (taxable or deductible) and determines the balance of the deferred tax liability and asset. Furthermore, it calculates E-Surfboards' taxable income for the year and prepares the necessary journal entries to record current and deferred tax. The analysis covers aspects like depreciation, bad debts, warranty costs, and employee benefits, providing a comprehensive understanding of financial reporting and tax implications for corporate entities. The document is a student submission for the FNSACC504 module, demonstrating the application of accounting standards and financial reporting principles.

Module 6 Week 8
Assessment Type Written Examination
Unit Title: Prepare financial reports for corporate entities
Student Declaration: I declare that this work has been completed by me honestly and with integrity. I understand that the
Elite Education Vocation Institute’s Student Assessment, Reassessment and Repeating Units of Competency Guidelines
apply to these assessment tasks.
Student Name:
Student Signature: Date:
Assessment submission (new) requirements
Please save this file as PDF format (include your name to the filename) before uploading onto Moodle.
Assessment/evidence gathering conditions
Each assessment component is recorded as either Satisfactory (S) or Not Yet Satisfactory (NYS). A student can only
achieve competence when all assessment components listed under procedures and specifications of the assessment
section are Satisfactory. Your trainer will give you feedback after the completion of each assessment. A student who is
assessed as NYS is eligible for re-assessment. Should the student fail to submit the assessment, a result outcome of Did
Not Submit (DNS) will be recorded.
Principles of Assessment
Based on Clauses 1.8 – 1.12 from the Australian Standards Quality Assurance’s (ASQA) Standards for Registered Training
Organizations (RTO) 2015, the learner would be assessed based on the following principles:
Fairness - (1) the individual learner’s needs are considered in the assessment process, (2) where appropriate, reasonable
adjustments are applied by the RTO to take into account the individual leaner’s needs and, (3) the RTO informs
the leaner about the assessment process, and provides the learner with the opportunity to challenge the result
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of the assessment and be reassessed if necessary.
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competencies held by the learner no matter how or where they have been acquired and, (3) the unit of
competency and associated assessment requirements, and the individual.
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covers the broad range of skills and knowledge, (2) assessment of knowledge and skills is integrated with their
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demonstrate these skills and knowledge in other similar situations and, (4) judgement of competence is based
on evidence of learner performance that is aligned to the unit/s of competency and associated assessment
requirements.
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irrespective of the assessor conducting the assessment
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of unit of competency and associated assessment requirements.
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mean that any form of plagiarism or copying of other’s work may not be permitted and would be deemed
strictly as a ‘Not Yet Competent’ grading.
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assessment evidence to be from the present or the very recent past.
Resources required for this Assessment
 All documents must be created using Microsoft Office suites i.e., MS Word, Excel, PowerPoint
 Upon completion, submit the assessment via the student learning management system to your trainer along with the
completed assessment coversheet.
 Refer the notes on eLearning to answer the tasks
 Any additional material will be provided by Trainer
Instructions for Students
Please read the following instructions carefully
 This assessment is to be completed according to the instructions given by your assessor.
 Students are allowed to take this assessment home.
 Feedback on each task will be provided to enable you to determine how your work could be improved. You will be
provided with feedback on your work within 2 weeks of the assessment due date.
 Should you not answer the questions correctly, you will be given feedback on the results and your gaps in knowledge.
You will be given another opportunity to demonstrate your knowledge and skills to be deemed competent for this unit
of competency.
 If you are not sure about any aspect of this assessment, please ask for clarification from your assessor.
 Please refer to the College re-assessment and re-enrolment policy for more information.
At 30 June 2014, E-Surfboards Limited had the following temporary differences:
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Page 659
The following information is available for the following year, the year ending 30 June 2015.
E-Surfboards Limited depreciates computers over five years in its accounting records but over three
years for tax purposes. The straight-line method is used. During the year E-Surfboards wrote off bad
debts amounting to $15 000. Warranty costs of $70 000 were paid during the year. No amounts were paid
for long-service leave during the year. The following information is extracted from the statement of
financial position at 30 June 2015:
There was no acquisition of plant and equipment during the year.
The tax rate as at 30 June 2014 and 30 June 2015 was 30 per cent.
REQUIRED:
(a) Calculate the amount of each of E-Surfboards' temporary differences, if any, at 30 June 2014, and state
whether it is deductible or taxable.
Ans. A temporary difference is the gap between the carrying amount of an asset or liability
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and its tax base. It can either be deductible or taxable: Deductible: It is one which will yield future amounts that can be deducted while computing
one's taxable income.
 Taxable: It is one which will yield future taxable amounts while calculating one's income
eligible for taxation purposes.
In both cases, these differences are settled once the carrying amount has been recovered
relating to an asset or liability.
E-Surfboards Limited,Temporary Differences as at 30 June, 2014 (Balance Sheet)
Asset or
Liability
Carrying
Amount
($'000)
Tax Base
($'000)
Temporary Difference ($'000)
Computers
at cost
300 300
Accumulate
d
Depreciation
60 100
Computers
(net)
240 200 40
Accounts
Receivable
100 100
Allowance
for doubtful
debts
-10 0
Accounts
Receivable
(net)
90 100 -10
Provision
for warranty
costs
30 0 30
Provision
for employee
benefits
(LSL)
20 0 20
As per the above calculations, each E-Surfboard includes Computers, Accounts Receivable,
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Provision for Warranty Costs and Employee Benefits. The Temporary Differences for:
Assets/
Liability
Temporary
Difference
Taxable/ Deductible
Computers 40 Taxable as they will generate future taxable incomes
through their usage.
Accounts
Receivable
10 It will be deducted from taxable income.
Provisions
for warranty
costs
30 Deductible
Provisions
for
Employee
Benefits
20 Deductible
Apart from these, Depreciation expense given in Profit and Loss Statement of Zebra will be
deductible as it will yield a future amount that would reduce the future taxable incomes too.
(b)What is the balance of the deferred tax liability and deferred tax asset, if any, as at 30 June 2014?
Ans. Deferred Tax Liability, in terms of temporary differences, relates to those future
incomes on which tax is payable. On the other hand, Deferred Tax Assets are those
which include:
 Deductible Temporary Differences;
 Carry Forward of Unused Tax Losses; and
 Carry Forward of Unused Tax Credit.
Apart from this, Tax Base of an Asset or Liability is one that will be deductible for taxation
purpose against any economic benefit which will be derived by a business enterprise once it
is able to recover its carrying amount. If economic benefits are not taxable, carrying amount
would be same as the tax base of the asset or liability.
Deferred Tax Liability, in the context of given scenario, shall be equal to the taxable
temporary differences which will be equal to $40,000 for E-Surfboard. On the other hand,
Deferred Tax Assets would include deductible temporary differences which brings the total
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tax assets to $60,000 (=$10,000+$30,000+$20,000).
(c)Calculate E-Surfboards' taxable income for the year ended 30 June 2015.
Taxable Income of E-Surfboards' for the year ended June 30, 2015
Particulars Gross ($'
000)
Net ($'000)
Profit Before
Tax
650
Less:
Deductions
Accounts
Receivable
-10
Provisions
for warranty
costs
-30
Provisions
for
Employee
Benefits
-20 -60
Taxable
Income
590
Less: Tax @
30%
-177
Income
After Tax
413
(d)Prepare journal entries to record current tax and deferred tax for the year ended 30 June 2015
Ans. Income tax expenses a/c 177
Deferred tax liability a/c 40000
To Income tax payable a/c 40177
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