26 Sep Boiling Pot Limited Commences Operations On 1 July 2014.
Boiling Pot Limited commences operations on 1 July 2014. One year after the commencement of its operations (30 June 2015) the entity prepare the following information, showing both the carrying amounts for accounting purposes and the tax bases of the respective assets and liabilities.
Caring value ($) Tax base ($)
Assets
Cash 60 000 60 000
Account 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
Account payable 60 000 60 000
Provision for long term 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 Limited is $700 000.
There is an allowance for doubtful debts of $10 000
An item of plant is purchase at a cost of $600 000 on 1 July 2014. For accounting purposes it is expected to have a life of 4 years; however, for taxation purposes it can be depreciated over 3 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 AASB116
None of the amount accrued in respect of warranty expenses or long-service leave has actually been paid
The tax rate is 30%
REQUIRED
Prepare the year-end journal entries to account for tax using the balance sheet method
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