Solution 6.14 and 6.15 - ACCY 200 Question 6.14 SUGGESTED...

ACCY 200 SUGGESTED SOLUTION AUTUMN 2015
Question 6.14 Current and deferred tax worksheets, change in tax rate
and tax entries
The profit before tax of Perfect Skin Ltd for the year ended 30 June 2017 is $600 000
and includes the following revenue and expense items:
Rent revenue
Government grant received (exempt from tax)
Bad debts expense
Depreciation expense – plant
Long-service leave expense
Annual leave expense
Office supplies expense
Entertainment expenses
Depreciation expense – buildings
$ 30 000
10 000
60 000
50 000
45 000
30 000
15 000
18 000
8 000
Extracts from the statements of financial position of the company at 30 June 2017 and
30 June 2016 showed the following assets and liabilities:
PERFECT SKIN LTD
Statement of Financial Position (Extract)
as at 30 June
2017 2016
Assets
Cash
Inventory
Accounts receivable
Allowance for doubtful debts
Office supplies
Plant
Accumulated depreciation
Buildings
Accumulated depreciation
Goodwill
Deferred tax asset
Liabilities
Accounts payable
Provision for employee benefits
Rent received in advance
Deferred tax liability
$ 80 000
170 000
500 000
(55 000)
25 000
500 000
(260 000)
300 000
(148 000)
70 000
?
290 000
100 000
25 000
?
$ 85 000
155 000
480 000
(40 000)
22 000
500 000
(210 000)
300 000
(140 000)
70 000
40 500
260 000
75 000
20 000
38 100
Additional information
(a)Entertainment costs and depreciation of buildings are not allowed as tax deductions.
(b)Accumulated depreciation of plant for tax purposes was $315 000 at 30 June 2016,
and depreciation for tax purposes for the year ended 30 June 2017 amounted to
$75 000.

(c) Office supplies are claimed as a tax deduction when purchased. Rent is taxed when
received.
(d)Assume a tax rate of 30% for the year ended 30 June 2017.
Required
A. Prepare a current tax worksheet for the year ended 30 June 2017 to calculate taxable
income and the company’s current tax liability, and then record the entries for
current tax.
B. Prepare a deferred tax worksheet as at 30 June 2017 to calculate the end-of-period
adjustments required for the deferred tax asset and liability accounts, and then
record the entries for deferred tax.
C. Assume that the government decided, after the election in August 2016, to change the
income tax rate for the year ended 30 June 2017 from 30% to 35%. Show the impact
of the change in the tax rate on the journal entries prepared under requirements A
and B, and prepare any additional entries that may be required.

Workings:
 Bad Debts written of