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Splitit Ltd commences operation on 1 July 2017 and present its first statement of profit and loss and other comprehensive income and first statement of financial position on 30 June 2018. The statements are prepared before considering taxation. The following information is available:

Splitit

Statement of comprehensive income [extracts]

For the year ended June 30, 2018

Gross Profit

$750,000

Expenses:

Administrative expenses

$100,000

Salaries

225,000

Doubtful debts

10,000

Long service leave

30,000

Warranty expenses

25,000

Depreciation expense – computers

50,000

Insurance

40,000

(480,000)

Profit before tax

$270,000

The statement of financial position at 30 June 2018 showed the following net assets.

Splitit Ltd

Statement of financial position [extracts]

For the year ended June 30, 2018

Assets

Cash 

$70,500

Inventory

176,700

Receivables (net)

110,000

Less Provision for doubtfull debts

10,000

100,000

Prepaid insurance

20,000

Land at market value

350,000

Computers 

400,000

Less Accumulated Depreciation

50,000

350,000

Total assets

$1,067,200

Liabilities

Accounts payable

$83,900

Salaries payable

14,300

Provision for warranty expenses

14,500

Provision for long service leave

17,500

Loan payable

230,000

Total liabilities

$360,200

Net assets

$707,000

Other information:

(a)      Amounts received from sales, including those on credit terms, are taxed at the time of the sale is made.

(b)      All administration and salaries expenses incurred have been paid as at 30 June 2018 except $14,300 salaries remain unpaid. 

(c)       Insurance was initially prepaid to the amount of $60,000. At 30 June 2018 the unused component of the prepaid insurance amounted to $20,000.

(d)      The computers is depreciated over 8 years for accounting purposes, but over 5 years for taxation purposes.

(e)       Warranty expenses were accrued for the year ending 30 June 2018 and actual payments of  $10,500 had been made. 

(f)       An amount of $12,500 long service leave expense has been paid.

(g)      Splitit Ltd decided to revalue land at 30 June 2018. This parcel of land was purchased at a cost of $250,000 and the market value of the land is $350,000.

(h)      The tax rate is 30 per cent.

Required:                                                                                                                  

1.         Compute the taxable income or loss. 2.         Complete the Taxation Worksheet on the next page in accordance with AASB 112 Income Tax .

3.         Prepare the applicable journal entries at 30 June 2018 to account for tax using the balance sheet method.

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