1.
1
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.
Income $
Sales Revenue 21,500,000
Expenses
Cost of goods sold 6,100,000
Salaries 820,000
Wages 170,000
Rent of premises 56,000
Administrative expenses 492,200
Entertainment costs 36,000
Doubtful debts 50,000
Long service leave 308,000
Warranty expenses 163,200
Insurance 125,600
Depreciation expense - Plant and Equipment 335,000
Depreciation expense – Vehicles 324,000
Depreciation expense – Buildings 110,000
Profit before Income Tax 12,410,000

2.
2
Geelong Ltd
Assets and Liabilities disclosed in the Statement of Financial Position for the
year ended 30 June 2015
$ $
Assets
Cash/ Bank 85,000
Accounts Receivables (net) 346,000
Inventory 464,800
Prepaid insurance 43,600
Plants & Equipments – cost 4,020,000
Less - Accumulated depreciation 335,000
3,685,000
Vehicles- cost 1,296,000
Less - Accumulated depreciation 324,000
972,000
Buildings- cost 1,650,000
Less - Accumulated depreciation 110,000
1,540,000
Land 2,250,000
Total assets 9,386,400
Liabilities
Accounts payables 851,200
Rent payable 38,000
Provision for warranty expenses 120,200
Provision for long service leave 119,000
Loan payable 1,658,000
Total liabilities 2,786,400
Net assets 6,600,000
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.

3.
3
 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.

4.
4
Geelong
Ltd
Taxation Worksheet as at 30 June 2015
Item Carrying
amount
$
Tax Base
$
Dedctable
Temporary
Difference
$
Taxable
Temporary
Difference
$
Tax
Expense
$
Revaluation
Surplus
$
Tax
Payable
$
Assets
Cash/ Bank
Receivables (net)
Prepaid insurance
Inventory
Property & Plant – net
Vehicles – net
Buildings – net
Land
Liabilities
Accounts payables
Rent payable
Provision for long service leave
Provision for warranty
Loan payable
Net assets
Temporary difference for year
Loss carried forward
Movement for the period
Tax effected at 30%
Tax on Taxable income
Income tax adjustment

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