Financial Accounting 1: Mamamia LTD Tax Calculation and Analysis

This document provides a comprehensive solution to a Financial Accounting 1 assignment. The assignment focuses on the determination of taxable income for Mamamia LTD, including adjustments to accounting profit for items like amortization, depreciation, and various expenses. It includes a detailed calculation of current tax liability based on a 30% tax rate and the preparation of journal entries to record the income tax expense and current tax liability. Furthermore, the solution calculates deferred tax assets and liabilities, identifying temporary differences between the carrying amount and tax base of assets and liabilities. The document presents the calculations, including adjustments for changes in the tax rate, and provides the relevant journal entries to reflect the tax effects on the closing values of assets and liabilities, along with supporting workings for the accumulated depreciation. The solution concludes with a bibliography citing relevant financial accounting textbooks.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL ACCOUNTING
Table of Contents
Requirement 2:...............................................................................................................2
Requirement 3:...............................................................................................................3
Requirement 4................................................................................................................4
Requirement 5................................................................................................................5
Bibliography:.................................................................................................................8
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2FINANCIAL ACCOUNTING
Requirement 2:
Mamamia LTD
Determination of Taxable Income
(for year ended 30 June 2019)
Accounting profit before tax $454,410
Add:
Amortisation of Development Cost $54,000
Depreciation Expense-Equipment $72,000
Entertainment Expense $22,410
Insurance Expense $43,200
Doubtful Debt Expense $25,200
Carrying Amount of Equipment Sold
(Accounting Base)
$66,000
Rent Received $48,600
Annual Leave Expenses $97,200 $428,610
$883,020
Less:
Development Expenditure $216,000
Additional 25% Tax Deduction on
Development Expenditure
$54,000
Depreciation Expense-Equipment $96,000
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3FINANCIAL ACCOUNTING
@20%
Insurance Paid $52,200
Bad Debt Expense $28,800
Carrying Amount of Equipment Sold
(Tax Base)
$48,000
Rent Revenue $45,000
Annual Leave Paid $104,400
Royalty Revenue 3600 $648,000
Taxable income $235,020
Tax on taxable income @30% $70,506
Less tax paid during the year $49,590
Current tax liability $20,916
Requirement 3:
Date Particulars Dr Cr
30/6/2019 Profit & Loss A/c. Dr. $70,506
To, Income Tax Expense A/c. $70,506
(Being income tax charged on the net taxable profit)
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4FINANCIAL ACCOUNTING
Income Tax Expense A/c. $20,916
Current Tax Liability A/c. $20,916
(Being current tax liability recorded)
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
Cash $99,000 $99,000
Accounts Receivable (Net) $531,000 $531,000
Allowance for Doubtful Debts ($28,800) $0 $28,800
Inventories $291,600 $291,600
Prepaid Insurance $4,000 $4,000
Rent Receivable $6,300 $6,300
Development Cost $216,000 $216,000
Accumulated Amortization ($54,000) ($54,000)
Equipment (Net) $360,000 $360,000
Accumulated Depreciation ($162,000 ($216,000 $54,000
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5FINANCIAL ACCOUNTING
) )
Liabilities
Accounts Payable $558,900 $558,900
Provision for Annual Leave $109,800 $109,800
Loan $180,000 $180,000
Total Temporary differences $280,300 $138,600
Excluded differences $0 $0
Net temp differences for
deferred tax
$280,300 $138,600
Deferred tax liability (30%) $84,090
Deferred tax asset (30%) $41,580
Beginning balances $34,987 $50,796
Adjustments -$4,116 -$5,976
Increases/ $53,219 ($44,820)
(Decrease)
Requirement 5
Date Particulars Dr Cr
30/6/2019 Deferred Tax Liability A/c. Dr. $4,116
Income Tax Expenses A/c. Dr. $1,860
To, Deferred Tax Assets A/c. $5,976
(Being the adjustments for change in tax rate
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6FINANCIAL ACCOUNTING
recorded)
Income Tax Expenses A/c. Dr. $98,039
To, Deferred Tax Liability
A/c.
$53,219
To, Deferred Tax Assets A/c. $44,820
(Being the tax effect on the closing values of assets &
liabilities recorded)
Workings:
Tax Base Accumulated Depreciation:
Particulars Amount
Purchase Cost of Equipment $480,000
Depreciation Rate for Tax Purpose 20%
Period (in years) 3
Accumulated Depreciation for Tax
Purpose $288,000
Less: Accumulated Depreciation of
Sold Equipment for Tax Purpose $72,000
Net Accumulated Depreciation for $216,000
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7FINANCIAL ACCOUNTING
Tax Purpose
Particulars Amount
Opening Deferred Tax Assets $50,796
Previous Tax Rate 34%
Current Tax Rate 30%
Opening Deferred Tax Assets at
revised rate $44,820
Net Adjustment Required -$5,976
Opening Deferred Tax Liabilities $34,987
Previous Tax Rate 34%
Current Tax Rate 30%
Opening Deferred Tax Assets at
revised rate $30,871
Net Adjustment -$4,116
7