MAA716 Assignment 1 - Accounting for Income Tax, T2 2017, Mamamia LTD

This assignment solution addresses the accounting for income tax, specifically focusing on the case of Mamamia LTD. It begins by outlining the tax treatment of various expenses and income items such as insurance costs, rent income, and entertainment costs. The solution then calculates Mamamia LTD's taxable income for the year ended 30 June 2019, including adjustments for entertainment expenses, amortization, depreciation, and other items. Furthermore, it calculates the depreciation, insurance, bad debts, profit on sale of equipment, rent received and leave expense. The solution also presents the journal entries required to record current tax adjustments and calculates deferred tax assets and liabilities, including the impact of a tax rate change. Finally, the solution provides detailed calculations and journal entries for deferred tax adjustments, offering a complete analysis of the company's tax position.

MAA716 Assignment Proforma T2 2017
Assignment 1 Part A – Accounting for Income Tax
Name:
Student ID:
Requirement 1
Insurance costs
The expense is given deduction for the purpose of taxation when the amount is paid. Hence the
amount of insurance is given deduction in the period when they are being paid. The insurance
expense will be given deduction for the full amount that is being paid in the full year and not
only for the amount that is due.
Rent income
The rent income will be chargeable to tax as and when the amount is received. The concept of
accrual basis applies only in accounting and does not apply for the purpose of taxation. The
amount being received will be chargeable to tax accordingly. Thus the amount of rent income
received and applied for the purpose of tax deduction will be equal. Thus the total amount of
rent paid during the year will be chargeable to tax. No relief is being given for the amount of rent
that will be due in the future years.
Entertainment costs
The entertainment cost will not be eligible for any kind of deduction when the amount of taxable
income is being calculated. The entertainment costs are given deduction only when the
accounting income is calculated and thus no deduction is being given for any kind of expenditure
being made for the purpose of entertainment. Thus the entertainment cost will be added back to
the accounting income in order to arrive at the taxable income.
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MAA716 Assignment Proforma T2 2017
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MAA716 Assignment Proforma T2 2017
Requirement 2
Mamamia LTD
Determination of Taxable Income
(for year ended 30 June 2019)
Accounting profit before tax 454410
Add:
Entertainment expense 22410
Excess revenue to be credited (48600-45000) 3600 26010
480420
Less:
Amortization of development
costs(216000*125%-54000)
216000
5% extra depreciation in excess of the
depreciation in books
24000
Excess amount to be shown in books for
insurance (52200-43200)
9000
Excess proceeds on sale of equipment (54000-
6000)
Actual leave payments (104400-97200)
Non assessable royalty revenue
48000
7200
3600 307800
Taxable income
Tax on taxable income @30%
Less tax paid during the year (15156+16884+17550)
172620
51786
49590
Current tax liability 2196
(Note: feel free to add more rows to the table above when necessary)
Calculation of the amount of depreciation deductible for tax purposes
Particulars Amount
Cost of equipment used in the year 30 June
2019
480000
5% extra depreciation for the purpose of taxation =480000*5%
= $24000
Calculation of the amount of insurance paid during the year
Particulars Amount
Closing balance 54000
Add: expense during the year 43200
Less: opening balance 45000
Amount paid during the year 52200
Calculation of the amount of bad debts
Particulars Amount
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MAA716 Assignment Proforma T2 2017
Opening balance 32400
Add: provision for bad and doubtful debts 25200
Less: closing balance 28800
Bad debts during the year 28800
Calculation of the profit on sale of equipment to be shown in profit and loss
account
Particulars Amount
Cost of equipment 120000
Less: depreciation for 3 years at 20% 72000
Written down value 48000
Proceeds on sale of equipment 54000
Net profit on sale 6000
Calculation of rent received during the year
Particulars Amount
Opening balance 9900
Add: rent shown as income 45000
Less: closing balance 6300
Rent received during the year 48600
Calculation of provision for annual leave expense
Particulars Amount
Opening balance 117000
Add: leave expense 97200
Less: closing balance 109800
Leave paid during the year 104400
Requirement 3
Journal entries to record the current tax adjustments at 30 June 2019:
Date Particulars Dr Cr
30.6.2019 Dr. Income tax expense
Cr. Current tax liability
(The adjustment of tax towards the
current tax liability )
51786
51786
30.6.2019 Dr. Current tax liability
Cr. Income tax paid in advance
(The amount of tax paid in advance )
72090
72090
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MAA716 Assignment Proforma T2 2017
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MAA716 Assignment Proforma T2 2017
Requirement 4
Mamamia LTD
Calculation of deferred tax
as at 30 June 2019
Carrying
Amount
Tax Base Taxable
Temp’y
Diffs
Deductible
Temp’y
Diffs
$ $ $ $
Assets
Accounts
receivable
502200 531000 28800
Inventories 291600 291600
Prepaid
insurance
54000 54000
Rent
receivable
6300 6300
Development
costs less
amortization
Deductible
amount of
25% excess
Equipment
less
depreciation
162000
198000
54000
144000
162000
54000
54000
Liabilities
Accounts
payable
558900 558900
Provision for
annual leave
Loan
109800
180000 180000
109800
Total
Temporary
differences
330300 138600
Excluded
differences
Net temp
differences
for deferred
tax
330300 138600
Deferred tax
liability (30%)
99090
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MAA716 Assignment Proforma T2 2017
Deferred tax
asset (30%)
41580
Beginning
balances
34987 50796
Adjustments
Increases/
(Decrease)
64103 (9216)
(Note: feel free to add more rows to the table above when necessary)
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MAA716 Assignment Proforma T2 2017
Requirement 5
Journal entry to record the change of tax rate and deferred tax for the year ended
30 June 2019:
Date Particulars Dr Cr
30.6.2019 Dr. Deferred tax liability (34987/34*30)
Dr. Income tax expense
Cr. Deferred tax asset (50796/34*30)
(Adjustment of tax rate)
4116
1860
5976
30.6.2019 Dr. Income tax expense
Cr. Deferred tax asset
Cr. Deferred tax liability
(The movement of deferred tax asset and
liability)
73319
9216
64103
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