2. Please solve the following Numerical and send the solution.

A. Jaguar Ltd purchased a machine on 1 July 2016 at the cost of $640,000. The machine is
expected to have a useful life of 5 years (straight-line basis) and no residual value. For taxation
purposes, the ATO allows the company to depreciate the asset over 4 years. The profit before tax
for the company for the year ending 30 June 2017 is $600,000. To calculate this profit the
company has deducted $60,000 entertainment expense, and $80,000 salary expense that has not
yet been paid. Also, the company has included $70,000 interest as income that the company has
not yet received. The tax rate is 30%.
Required:
(a) Calculate the company’s taxable profit and hence its tax payable for 2017.
(b) Determine the deferred tax liability and/or deferred tax asset that will result.
(c) Prepare the necessary journal entries on 30 June 2017.

Soln:
Cost of Machinery = $640,000
Expected life of Machinery = 5 years
Expected life of Machinery for Tax purpose = 4 years
Residual value after 5 years = 0

Calculation of Depreciation
Cost−Residual Value
Depreciation =
Expected life
640000−0
=
5
= $128,000

a) Calculation of company's taxable profit

Profit before tax excluding depreciation 600,000

Add: Entertainment expenses 60,000
Salary expenses 80000
Less: Interest not received (70000)
Depreciation (128000)
Earning before tax 542,000
Less: Tax (30%) (162,600)
Earning after tax 379,400

Therefore, the company's taxable profit is $542,000.

b) Calculation of the deferred tax liability/deferred tax assets

Earning before tax 542,000

Add; Depreciation 128,000
Depreciation as tax rule 160,000
Taxable income 440,000
Tax payable 132,000
Tax expense 162600
Deferred tax liability/tax assets 30,600

Therefore, the deferred tax liability is $30,600.

c) Journal

Date Particulars L.F. Debit ($) Credit ($)

30/06/2017 Tax expense $162,600
Deferred tax liability $30,600
Income tax payable $132,000