22 Boiling Pot Limited commences operations on 1 July 2014.
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18.22

Boiling Pot Limited commences operations on 1 July 2014. One year after the

commencement of its operations (30 June 2015) the entity prepares the following information, showing both the carrying amounts for accounting purpose and the tax bases of the respective assets and liabilities.

 

Carrying values($)

Tax bases($)

Assets

 

 

Cash

60 000

60 000

Accounts receivable (net)

50 000

60 000

Prepaid insurance

20 000

 

Inventory

80 000

80 000

Plant—net

450 000

400 000

Land

   600 000

  400 000

 

1 260 000

1 000 000

Liabilities

 

 

Accounts payable

60 000

60 000

Provision for long-service leave

30 000

 

Provision for warranty

40 000

 

Loan payable

 400 000

 400 000

 

 530 000

 460 000

Net assets

 730 000

 540 000

Other information

·    After adjusting for differences between tax rules and accounting rules, it is determined that the taxable income of Boiling Pot Limite is $700 000.

·    There is an allowance for doubtful debts of $10000.

·    An item of plant is purchased at a cost of $600 000 on 1 July2014. For accounting purpose it is expected to have a life of four years; however, for taxation purpose it can be depreciated over three years. It is not expected to have any residual value.

·    Boiling Pot Limited has some land, which cost $400 000 and which has been revalued to its fair value of $600 000 in accordance with AASB 116.

·    None of the amounts accrued in respect if warranty expenses or long-service leave has actually been paid.

·    The tax rate is 30 per cent.

REQUIRED

Prepare the year-end journal entries to account for tax using the balance sheet method.

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