Accounting Problem - Geelong Ltd began operations on 1 July 2014

Geelong Ltd began operations on 1 July 2014. One year after operations, the entity presents its first Statement of Comprehensive Income and Statement of Financial Position on 30 June 2015. However, the statements were prepared for internal purposes but income tax calculations were ignored. Accounting profit before income tax for the year 30 June 2015 of Geelong Ltd amounted to $12,410,000, including the following revenue and expenses.

Geelong Ltd

Assets and Liabilities disclosed in the Statement of Financial Position for the year ended 30 June 2015

Additional information:

• The plants & equipments are depreciated over 12 years for accounting purposes, but over 10 years for taxation purposes. The useful life of vehicles is 3 years for the tax purposes and 4 years for accounting purposes. Therefore, there is a temporary difference between accounting and taxation depreciation for plants & equipments, and computers.
• Geelong Ltd has some land which cost $1,630,000 and has been re-valued to its fair value of $2,250,000.
• All administration, salaries and wages expenses incurred have been paid as at year-end.
• Total bad debts written off for the year were $30,000.
• The amount of $189,000 long service leave expense has been paid.
• Amounts received from sales, including those on credit terms, are taxed at the time of the sale is made.
• Warranty expenses were accrued and, at the year-end, actual payments of $43,000 has been made (leaving an accrued balance of $120,200). Deductions for tax purposes are only available when the amounts are paid and not as they accrued.
• Insurance was initially prepaid to the amount of $169,200. At the year-end, the unused component of the prepaid insurance amounted to $43,600. Actual amounts paid are allowed as a tax deduction.
• Entertainment expenses and depreciation of buildings are not allowed as deductions for income tax.
• The tax rate is 30 per cent.

Required:

(i) Compute the taxable income or loss.

(ii) Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Taxes.

(iii) Prepare the applicable journal entries at 30 June 2015 to account for tax using the balance sheet method.

Geelong Ltd

Taxation Worksheet as at 30 June 2015