ACCT5942 Corporate Accounting and Regulation
Corporate Accounting and Regulation
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ACCT5942 Corporate Accounting and Regulation
Assignment 1: Accounting for income tax
Sterling Security Cameras Ltd
Student Question
Assets
Cash at Bank 216,000
Accounts receivable 778,500
Allowance for doubtful debts (54,500)
Inventory 672,100
Prepaid rent 10,370
Machine 2,590,000
AcDepn - Machine (1,295,000)
Deferred tax asset 36,200
Land 1,840,000
Total Assets 4,793,670
Liabilities
Accounts payable 448,100
Allowance for warranties 25,750
Wages due 6,460
Provision for staff leave 50,430
Revenue received in advance 103,400
ATO Creditor -
Bank loan 1,159,800
Deferred tax liability 57,900
Total liabilities 1,851,840
Equity
Shareholder capital 1,456,763
Retained profits 297,013
Current year profit 1,188,053
Total Equity 2,941,830
You work for Sterling Security Cameras Ltd in Randwick which was recently sold to Klout Capital Managers. As part of the
takeover, the former CFO resigned and you have been appointed acting CFO. Tax returns and corporate reports are due next
week. The Klout board asked you determine the current tax liability, and the deferred tax assets and liabilities. They require
you to use a fixed template which integrates into Klout’s accounting system.
Below is all the relevant information extracted from the Sterling’s general ledger.
ACCT5942 Corporate Accounting and Regulation - 2023
Assignment 1: Accounting for income tax
Sterling Security Cameras Ltd
Student Question
Unadjusted Income Statement Page 2
for the financial year ended 30/6/2023
$ $
Income
Product Sales 5,170,000
Service revenue 1,577,000 6,747,000
Less cost of goods sold 2,688,400
Gross Profit 4,058,600
Less operating expenses
Wages expense 1,686,750
Leave entitlements expense 194,630
Warranties expense 103,000
Bad & doubtful debt expense 258,500
Fines & penalties 32,900
Legal costs 19,700
Rent expense 62,200
Interest expense 81,200
Depreciation - Machine 431,667
Income tax expense - 2,870,547
Net profit before tax 1,188,053
Accounting Policies and Additional information:
⮞ Sterling Security Cameras Ltd reports using the Australian financial year ending 30 June.
⮞ The opening balance of Provision for staff leave was $90,800. Staff get 6 week of leave (4 weeks holiday and 2 weeks of sick
leave) per annum. Last year the pay cycle coincided with balance day so opening wages due was zero.
⮞ The opening balance for Prepaid rent was zero as on 1 July 2022, Sterling Security Cameras Ltd moved into a new premises
and paid 14 months of rent in advance.
⮞ All sales are assessable income at point of sale. The opening balance of allowance for doubtful debts was $57,700.
⮞ This is the first year they offered warranties, therefore the opening balance of provisions for warranties was $0. Tax law
allows a deduction when customers make a claim.
⮞ Sterling Security Cameras Ltd is on an upward trajectory and is expected to make significant future profits.
⮞ The machinery was bought 3 year(s) ago.
⮞ For accounting purposes, the machinery is depreciated on a straight-line basis over 6 years.
⮞ For taxation purposes, the machinery is depreciated on a straight-line basis over 7 year(s).
⮞ The machine has an expected residual value of $0.
⮞ The land was bought 2 years ago for $1,968,800. Management will sell the land in 2 years.
⮞ Supply chain shortages means that Sterling customers must pay in advance since 1 Jan 2022. Before this, no customer has
ever prepaid.
⮞ Last year's DTAs/DTLs were calculated at 26.0% income tax rate, but a new rate of 30.0% applies for this entire year.
⮞ All fines, penalties, and legal expenses are paid when incurred, however only legal fees are deductable.
⮞ Accounting policy is to maintain separate DTA and DTL accounts. Do not net off DTAs and DTLs.