Assignment topic and requirements: Mamamia Ltd’s profit before tax for the year ended 30 June 2019 is $454 410. Included in this profit are the following items of income and expense: Amortisation of development costs Depreciation expense for equipment Entertainment expense Insurance expense Doubtful debts expense Proceeds on sale of equipment Carrying amount of equipment sold Rent revenue Annual leave expense Royalty revenue (non-assessable) $54 000 72 000 22 410 43 200 25 200 54 000 66 000 45 000 97 200 3 600 At 30 June, the company’s statements of financial position showed the following balances (Extract): MAMAMIA LTD Statement of Financial Position as at 30 June 2019 2018 Assets Cash Accounts receivable Allowance for doubtful debts Inventories Prepaid insurance Rent receivable Development costs Accumulated amortisation Equipment Accumulated depreciation Deferred tax asset Liabilities Accounts payable Provision for annual leave Loan Deferred tax liability Current tax liability $ 99 000 531 000 (28 800) 291 600 54 000 6 300 216 000 (54 000) 360 000 (162 000) ? 558 900 109 800 180 000 ? ? $ 117 000 498 600 (32 400) 333 000 45 000 9 900 — — 480 000 (144 000) 50 796 529 200 117 000 270 000 349 87 22 500 Page 3 of 5 Additional information: • Rent is assessed for tax when received in cash. • A tax deduction for development expenditure of 125% of the $216 000 spent during the year is available under income tax legislation. The profit before tax reflects the amount of development costs amortised in the current period. • All equipment was purchased on 1 July 2016, depreciated at 15% per annum. The tax depreciation rate for equipment is 20%. The equipment sold on 30 June 2019 cost $120 000. • The company pays tax in quarterly instalments. During the year ended 30 June 2019, the following payments have been made: o 28 July 2018 (Final payment for 30 June 2018) $22 500 o 28 October 2018 (1st payment for 30 June 2019) $15 156 o 28 February 2019 (2nd payment for 30 June 2019) $16 884 o 28 April 2019 (3rd payment for 30 June 2019) $17 550 • The company tax rate applicable for the year ended 30 June 2018 was 34%, but as a result of the government’s taxation reform, the company tax rate dropped to 30% effective from 1 July 2018. No entry has yet been made in the current period for the change in tax rates. Required: 1. Using no more than 300 words to explain the rationale underlying the treatment of the following items in the current tax worksheet: • Insurance costs • Rent income • Entertainment costs (Please note: when compiling your answer, you need to use your own words; simply copying from the textbook or AASB 112 will be scored zero). 2. Prepare the current tax worksheet to determine taxable income and calculate the current tax liability for the year ended 30 June 2019. 3. Prepare the journal entries relevant to current tax for the year ended 30 June 2019 (narrations are required). 4. Prepare the deferred tax worksheet to calculate the deferred tax asset and liability balances as at 30 June 2019. 5. Prepare the journal entries relevant to the change of tax rate and deferred tax for the year ended 30 June 2019 (narrations are required).