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A ustralian Company Accounting - Coursework Example

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Company Accounting Name Company Accounting Question: Requirement 1: For the calculation of income tax liability the accounting profit is to be adjusted for the carrying amount of the equipment and the tax exempted revenue. Thus the amount of accounting profit for the year 30 June 2011 becomes: Accounting Profit $ 18,500 Carrying amount of equipment sold $ 18,000 Royalty Revenue (exempt from tax) $ (5,000) Rent Revenue $ (16,000) - Tax - Adjusted Accounting Profit $ 15,500 The tax rate is 30%…
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A ustralian Company Accounting
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A ustralian Company Accounting

Income tax Liability (Statement of Financial Position) $ 4,650 Requirement 3: Treatment: Doubtful Debts Expense: Doubtful debts represent that balance of amount which will not be recoverable out of the total trade receivables of the company. This is considered to be a trade expense thus is accounted for in the income statement of the company. Rent Revenue: Rent revenue is defined as an income generated by the company through renting out any of its assets. It can include machinery, equipment or property. All kinds of income generated by the company are included in the profit and loss account of the company. But for tax purposes it is taxable under savings income heading so it will be deducted from the profit of the company and taxable separately as the savings income has a different tax rate. Entertainment Expense: Entertainment expense comprises of the expense incurred during the process of entertaining the clientele of the company. As the entertainment expenses incurred on the employees is not an allowable expense for tax purposes, it is assumed that this expense relates to the one incurred on the clientele unless otherwise stated. Thus it will also be included in the profit and loss account of the company for tax purposes as a deductible. Requirement 4: Calculation of Deferred Tax Asset and Liability: Calculation of tax base values of assets: MOTOR VEHICLE: Book Value ($) Tax Base ($) Motor Vehicle (Cost) 18,000 18,000 Motor Vehicle (Acc. Depreciation) (15.750) (18,000) ------------------- ---------------- 2,250 Nil Thus Deferred Tax Liability = 2,250 * 30% = $675 EQUIPMENT: Book Value ($) Tax Base ($) Equipment (Cost) 100,000 100,000 Equipment (Accumulated Depreciation) (60,000) (45,000) ------------------- ----------------- 40,000 55,000 Deferred Tax Asset = ($55,000-$40,000) * 30% = $ 4,500 RECEIVABLES: Tax Base = $12,000 Thus deferred tax liability = 12,000 * 30%= $3,600 RENT RECEIVBALE: Tax Base = $2,800 Thus deferred tax liability = 2,800 * 30% = $840 Total Deferred Tax Liability = $675+$3,600+$840 = $ 5,115 Thus the new deferred tax asset and liability becomes $4,500 and $5,115 respectively. Requirement 4: Journal Entries: Deferred Tax Asset: Dr. Tax Expense (Statement of financial performance) $ 1,950 Cr. Deferred Tax Asset (Balance sheet) $ 1,950 Deferred Tax Liability: Dr. Tax Expense (Statement of financial performance) $ 2,370 Cr. Deferred Tax Liability (Balance sheet) $ 2,370 Question 2: REPORT Executive Summary This report is designed for the purpose of reflecting on the new accounting policy change that is being implemented by the company which requires the company to disclose its advertisement expense as an asset as opposed to be treated as an expense as it incurs. In this report it was observed and suggested that the criteria for the policy change implemented by the company met the recognition criteria of an asset as set by the AASB (Australian Accounting Standard Board), and was of material balance to be disclosed in the financial statements of the company. Introduction: The purpose of this report is to determine if the new policy of the company to record its advertisement expenses as an asset is true and fair according to Australian ... Read More
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