Boiling Pot Limited commences operations on 1 July 2014.

Question.docx

Home >Business & Finance homework help >Accounting homework help >Boiling Pot Limited commences operations on 1 July 2014.

Question 3 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