ACCY200, Autumn 2023, Week 4 Tutorial Questions & Solutions

Question 1: McCombie, K (2023)

Extract of relevant assets and liabilities 30 June 2023 30 June 2022

Allowance for doubtful debts 46,000 50,000
Prepaid insurance 40 000 30 000
Provision for employee benefits 64 000 76 000
Interest payable 6 000 8 000
Rent revenue received in advance 12 000 10 000

Included in profit for the year (2023) were the following income and expenses:

Rent revenue $9,000

Bad debts expense $19,000
Insurance expense $15,000
Interest expense $12,000
Employee expenses $65,000

Required:
Calculate taxable revenues and tax deductions with regards to the above items that have been
disclosed in the statement of financial position and statement of comprehensive income for the
year 30 June 2023. Show your working out using the beginning and ending balances.

Answers:
• Taxable revenue

Rent received (in advance) = Closing balance + rent revenue – opening balance = 9 000 + 12 000
– 10 000 = 11 000
Rent revenue received in advance
$ $
Rent revenue 9 000 Opening balance 10 000
Closing balance 12 000 Rent received 11 000
21 000 21 000

• Tax deductions

Bad debts written off = opening balance + bad debts expense – closing balance = 50 000 + 19 000 –
46 000 = 23 000
Allowance for doubtful debts
$ $
Bad debts written off 23 000 Opening balance 50 000
Closing balance 46 000 Expense 19 000
69 000 69 000

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Insurance paid = Closing balance + insurance expense – opening balance = 40 000 + 15 000
– 30 000 = 25 000

Prepaid insurance
$ $
Opening balance 30 000 Expense 15 000
Insurance paid 25 000 Closing balance 40 000
55 000 55 000

Interest paid = opening balance + interest expense – closing balance = 8 000 + 12 000 – 6 000
= 14 000
Interest payable
$ $
Interest paid 14 000 Opening balance 8 000
Closing balance 6 000 Expense 12 000
20 000 20 000

Employee benefits paid = opening balance + employee expenses – closing balance = 76 000 +
65 000 – 64 000 = 77 000

Provision for employee benefits

$ $
Employee benefits paid 77 000 Opening balance 76 000
Closing balance 64 000 Employee expenses 65 000
141 000 141 000

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Question 2: Adapted from Loftus et al (2023), Chapter 13, amended by McCombie, K (2023)

Exercise 13.3

Marrah Ltd made an accounting profit before tax of $80,000 for the year ended 30 June 2024. Included
in the accounting profit were the following items of revenue and expense:

Entertainment expenses $ 8,000

Depreciation expense — equipment (10%, straight‐line) 20,000
Annual leave expense 5,000
Rent revenue 15,000

Included in the statement of financial position were the following asset and liability:
2024 2023
Provision for annual leave $ 12,500 15,000
Rent receivable $ 20,000 15,000

Additional information:
• Depreciation rate on equipment for tax purposes is 15% straight line.
• Income tax rate is 30%

Required
Calculate the current tax liability for the year ended 30 June 2024 for Marrah Ltd and prepare the
journal entry to recognise it.
(Show all working out for your tax related revenues/income and expenses/deductions and show your
current tax worksheet)

Calculations for tax deductions and taxable revenue:

Depreciation for tax purposes = 20 000/0.10 x 0.15 = 30 000

Annual leave paid = opening balance + annual leave expense – closing balance = 15 000 + 5 000
– 12 500 = 7 500
Provision for annual leave
$ $
Annual leave paid 7 500 Opening balance 15 000
Closing balance 12 500 Annual leave expense 5 000
20 000 20 000

Rent received = opening balance + rent revenue – closing balance = 15 000 + 15 000 – 20 000
= 10 000

Rent receivable
$ $
Opening balance 15 000 Rent received 10 000
Rent revenue 15 000 Closing balance 20 000
30 000 30 000

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 MARRAH LTD
Current tax worksheet
for year ended 30 June 2024

Accounting profit $80 000

Add:
Entertainment expenses 8 000
Depreciation expense – machinery 20 000
Annual leave expense 5 000
Rent received 10 000 43 000

Deduct:
Rent revenue 15 000
Depreciation – machinery (tax) 30 000
Annual leave paid 7 500 (52 500)
Taxable profit $70 500
Current tax liability @ 30% $21 150

Journal entry:

Dr Income tax expense (current) 21 150

Cr Current tax liability 21 150

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Question 3: McCombie, K (2023), Amended past exam question

For the year ended 30 June 2023, Lulu Ltd reported a profit before tax of $10,000. Included in the
profit were the following income and expense items:

Interest revenue $50,000

Rent revenue $25,000
Bad debts expense $10,000
Depreciation expense – plant $21,000
Long service leave expense $20,000

The draft Statements of Financial Position of Lulu Ltd at 30 June 2023 and 30 June 2022 included the
following assets and liabilities:
2023 2022
$ $
Accounts receivable 70,000 50,000
Allowance for doubtful debts (10,000) (5,000)
Interest receivable 20,000 25,000
Plant 210,000 210,000
Accumulated depreciation – plant (63,000) (42,000)
Rent revenue received in advance 8,000 4,000
Provision for long service leave 30,000 40,000

Additional information:
• For accounting purposes plant is depreciated using the straight line method over 10 years. For
tax purposes plant is depreciated using the straight line method over 3 years.
• The company tax rate is 30%.
Required:
Prepare the current tax worksheet and the journal entry to recognise current tax at 30 June
2023.
Calculations for tax deductions and taxable revenue:
• Interest received = beginning balance – ending balance + interest revenue
= 25 000 – 20 000 + 50 000 = $55 000
Interest Receivable
$ $
Opening balance 25 000 Interest received 55 000
Interest revenue 50 000 Ending balance 20 000
75 000 75 000

• Rent received = ending balance – beginning balance + rent revenue

= 8 000 – 4 000 + 25 000 = $29 000
Rent received in advance
$ $
Rent revenue 25 000 Opening balance 4 000
Ending balance 8 000 Rent received 29 000
33 000 33 000

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 • Bad debts written off = beginning balance – ending balance + bad debts expense
= 5 000 – 10 000 + 10 000 = $5 000
Allowance for doubtful debts
$ $
Bad debts written off 5 000 Opening balance 5 000
Ending balance 10 000 Bad debt expense 10 000
15 000 15 000

• Depreciation for tax = 210,000/3 = 70,000

• LSL paid = Beginning balance – ending balance + LSL expense

= 40 000 – 30 000 + 20 000 = $30 000
Provision for long service leave
$ $
Long service leave paid 30 000 Opening balance 40 000
Ending balance 30 000 LSL expense 20 000
60 000 60 000

Lulu Ltd
Current tax worksheet
for year ended 30 June 2023
$ $
Accounting profit 10 000
Add:
Bad debts expense 10 000
Long service leave expense 20 000
Depreciation expense - plant 21 000
Interest received 55 000
Rent received 29 000 135 000
Deduct:
Interest revenue 50 000
Rent revenue 25 000
Bad debts written off 5 000
Long service leave paid 30 000
Depreciation – plant (tax) 70 000 (180 000)
Tax Loss (35 000)
Deferred tax asset @30% $10 500

Dr Deferred Tax Asset 10 500

Cr Income tax expense (current) 10 500

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Question 4: Adapted from Loftus et al (2023), Chapter 13, amended by McCombie, K (2023)

Exercise 13.18

The accounting profit before tax of Rakiura Ltd for the year ended 30 June 2024 was $66 720. It
included the following revenue and expense items.

Government grant 5 500

Gain on sale of plant 3 000
Entertainment expense 8 200
Bad debts expense 8 100
Depreciation expense — plant 24 000
Insurance expense 12 900
Annual leave expense 15 400

The draft statement of financial position as at 30 June 2024 included the following assets and liabilities.

2024 2023
Accounts receivable 156 000 147 500
Allowance for doubtful debts (6 800 (5 200
Prepaid insurance 3 400 5 600
Plant 240 000 290 000
Accumulated depreciation — plant (134 400 (130 400
Provision for annual leave 14 100 9 700

Additional information
• For tax purposes, the gain on sale of plant was $7 000.
• The tax deduction for plant depreciation was $28 800.
• The income tax rate is 30%.

Required
Prepare the current tax worksheet for Rakiura Ltd and journal entry to calculate and record the
current tax for the year ended 30 June 2024.

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Calculations for tax deductions and taxable revenue:

Bad debts written off: opening balance of allowance for doubtful debts $5 200 + bad debts expense
$8 100 – closing balance of allowance for doubtful debts $6 800 = $6 500.

Allowance for doubtful debts

$ $
Bad debts written off 6 500 Opening balance 5 200
Closing balance 6 800 Doubtful debts 8 100
expense
13 300 13 300

Insurance paid: closing balance of prepaid insurance $3 400 + insurance expense $12 900 – opening
balance of prepaid insurance $5 600 = $10 700.

Prepaid insurance
$ $
Opening balance 5 600 Closing balance 3 400
Insurance paid 10 700 Insurance expense 12 900
16 300 16 300

Annual leave paid: opening balance of provision for annual leave $9 700 + annual leave expense
$15 400 – closing balance of provision for annual leave $14 100 = $11 000.

Provision for annual leave

$ $
Annual leave paid 11 000 Opening balance 9 700
Closing balance 14 100 Annual leave 15 400
expense
25 100 25 100

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 RAKIURA LTD
Current tax worksheet
for year ended 30 June 2024

Accounting profit $66 720

Add:
Entertainment expense $8 200
Bad debts expense 8 100
Depreciation expense – plant 24 000
Insurance expense 12 900
Annual leave expense 15 400
Gain on sale of plant (tax) 7 000 75 600
Deduct:
Government grant 5 500
Bad debts written off 6 500
Depreciation – plant (tax) 28 800
Insurance paid 10 700
Annual leave paid 11 000
Gain on sale of plant (accounting) 3 000 (65 500)
Taxable profit 76 820
Current tax liability @ 30% $23 046

Journal entry:

Income tax expense (current) Dr 23 046

Current tax liability Cr 23 046

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Week 4 Tutorial Practice Questions

Question 1

Spacy Ltd recorded an accounting profit before tax of $20,000 for the year ended 30 June 2023.
Included in the accounting profit were the following income and expenses:

Rent revenue $46,000

Insurance expense $58,000
Annual leave expense $68,000

An extract of the Statement of Financial Position for 30 June 2023 revealed the following balances

2023 2022
Rent receivable $54,000 $37,000
Prepaid Insurance $59,000 $52,000
Provision for annual leave $60,000 $80,000

The tax rate is 30%

Required:

Calculate taxable income (loss) and record the necessary journal entry for current income tax
expense for the year ended 30 June 2023.

Working out:

Rent received: beg rent receivable – end rent receivable + rent revenue

= 37,000 – 54,000 + 46,000 = $29,000

Rent receivable

Beginning Bal. 37,000 Received 29,000

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 Revenue 46,000 Ending Bal. 54,000

83,000 83,000

Insurance paid: end prepaid insurance – beg prepaid insurance + insurance expense

= 59,000 – 52,000 +58,000 = $65,000

Prepaid insurance

Beginning Bal. 52,000 Expense 58,000

Paid 65,000 Ending Bal. 59,000

117,000 117,000

Annual leave paid: beg provision for AL – end provision for AL + AL expense

= 80,000 – 60,000 + 68,000 = $88,000

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 Provision for annual leave

Paid 88,000

Beginning Bal. 80,000

Ending Bal. 60,000
148,000

Expense 68,000

148,000

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Accounting profit 20,000

Add:

Insurance expense 58,000

Annual leave expense 68,000

Rent received 29,000 155,000

Less:

Rent revenue 46,000

Insurance paid 65,000

Annual leave paid 88,000 (199,000)

Tax Loss (24,000)

Deferred tax asset @ 30% $7,200

Journal entry:

Dr Deferred tax asset 7,200

Cr Income tax expense 7,200

(Record end of year current income tax expense)

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Question 2

Ocean Ltd recorded an accounting profit before tax of $50,000 for the year ended 30 June 2023.
Included in the accounting profit were the following income and expenses:

Rent revenue $46,000

Interest revenue $28,000
Bad debts expense $34,000

An extract of the Statement of Financial Position for 30 June 2023 revealed the following:

2023 2022
Accounts receivable $96,000 $56,000
Allowance for doubtful debts ($44,000) ($18,000)
Interest receivable $40,000 $24,000
Rent Revenue in Advance $22,000 $38,000

The company tax rate is 30%.

Required:

Calculate taxable income (loss) and record the necessary journal entry for current income tax
expense for the year ended 30 June 2023.

Working out:

Rent received: end rent revenue in advance – beg rent revenue in advance + rent revenue

= 22,000 – 38,000 + 46,000 = 30,000

Rent revenue in advance

Beginning Bal. 38,000

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 Revenue 46,000

Ending Bal. 22,000 Received 30,000

68,000 68,000

Interest received: beg interest receivable – end interest receivable + interest revenue

= 24,000 – 40,000 + 28,000 = 12,000

Interest receivable

Beginning Bal. 24,000

Received 12,000

Revenue 28,000 Ending Bal. 40,000

52,000 52,000

Bad debt written off (BDWO): beg all.for DD – end all.for DD + Bad debt expense

= 18,000 – 44,000 + 34,000 = $8,000

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 Allowance for doubtful debts

BDWO 8,000

Beginning Bal. 18,000

Ending Bal. 44,000
52,000

Expense 34,000

52,000

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Accounting profit 50,000

Add:

Bad debt expense 34,000

Interest received 12,000

Rent received 30,000 76,000

Less:

Rent revenue 46,000

Interest revenue 28,000

Bad debt written off 8,000 (82,000)

Taxable income 44,000

Current tax liability @ 30% $13,200

Journal entry:

Dr Income tax expense 13,200

Cr Current tax liability 13,200

(Record end of year current income tax expense)

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