Illustration of accounting treatment of deferred tax, Financial Accounting

Illustration of Accounting treatment of deferred tax

A Ltd., bought an item of plant at a cost of £100,000 in year 2000. The estimated useful life of the plant was 5 years and depreciation is on a straight line basis with no residual value. The company makes profits before tax of £200,000 and the corporation tax rate is 30%.  The item of plant has the following:

Year    1    2    3    4    5
Rate    30%    25%    20%    15%    10%

Required:
(for each of the five years)

i) Tax liability (corporation)
ii) Carrying amount, tax base, taxable temporary difference of the plant and the balance carried down on deferred tax account.
iii)    The deferred tax account
iv)    Final accounts extracts (Profit and loss + balance sheet)
Assume that the corporation tax liability is unpaid by the year end.

Corporation tax liability

 

 

2000

2001

2002

2003

2004

 

£

£

£

£

£

Profit before tax

200,000

200,000

200,000

200,000

200,000

Add back depreciation

  20,000

  20,000

  20,000

  20,000

  20,000

 

220,000

220,000

220,000

220,000

220,000

Less capital allowances

(30,000)

(25,000)

(20,000)

(15,000)

(10,000)

Taxable profits

190,000

195,000

200,000

205,000

210,000

Taxable liability  (30%)

(57,000)

(56,500)

(60,000)

(61,500)

(63,000)

 

133,000

136,500

140,000

143,5000

147,000

 

 

Carrying amount, tax base, and taxable temp diff.

 

 

2000

2001

2002

2003

2004

 

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

Carrying amount:  Cost

100

100

100

100

100

Accumulated depreciation

  20

  40

  60

  80

100

 

  80

  60

  40

  20

    -

Tax box:  Cost

100

100

100

100

100

               Accumulated capital all

(30)

(55)

(75)

(90)

(100)

 

70

45

25

10

     -

Taxable temp. difference

10

15

15

10

-

Bal c/d on deferred tax a/c (30%)

3

45

45

3

-

 

 

Deferred Tax Account

 

 

£ ‘000’

 

 

£ ‘000’

31/12/00

Bal c/d

   3

31/12/00

P & L (bal. fig)

   3

31/12/01

Bal c/d

4.5

1/1/01

Bal b/d

3

 

 

 

31/12/01

P & L (bal. fig)

1.5

 

 

 4.5

 

 

 4.5

31/12/02

Bal c/d

 4.5

1/1/02

Bal b/d

 4.5

31/12/03

P & L (Bal. fig)

4.5

1/1/03

Bal b/d

 4.5

31/12/03

Bal c/d

1.5

 

 

 

 

 

3

 

 

 

 

 

4.5

 

 

4.5

 

 

   3

1/1/04

Bal b/d

  3

 

Final accounts extracts

 

Income statement

 

 

2000

2001

2002

2003

2004

 

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

Profit before tax

200

200

200

200

200

Income tax

  60

  60

  60

  60

  60

Profit for the period

140

140

140

140

140

 

 

Workings:  Income tax expense

 

Current year estimated corporation tax liability

 

57

 

58.5

 

60

 

61.5

 

63

Add/(less) transfer to/(from) deferred tax a/c

 

  3

 

  1.5

 

   -

 

(1.5)

 

(3)

 

60

60.0

60

60

60

 

Balance Sheet

 

NON-CURRENT LIABILITIES

 

 

 

 

 

Deferred tax

3

4.5

4.5

3

-

CURRENT LIABILITIES

 

 

 

 

 

Current tax

57

58.5

60

61.5

63

 

Posted Date: 12/12/2012 12:47:37 AM | Location : United States







Related Discussions:- Illustration of accounting treatment of deferred tax, Assignment Help, Ask Question on Illustration of accounting treatment of deferred tax, Get Answer, Expert's Help, Illustration of accounting treatment of deferred tax Discussions

Write discussion on Illustration of accounting treatment of deferred tax
Your posts are moderated
Related Questions
RIGHTS AND DUTIES OF TRUSTEE The rights and duties of trustee are as follows: Powers of trustee: Sell and transfer any part of the bankrupt's property;Carry on the busines

compute the arithmetic mean rate of return and standard deviation of rates of return for the two series

A quick glance at the trend in the Operating and Net Profit Margin figure indicates an improvement in the margins over the 2 year period. As is evident from the graph above HAIL du


Determine the term- Understandability Accounting reports must be expressed as clearly as possible and must be understood by those at whom the information is aimed.

Suppose the interest rate for a one-period bond is 4%. (a) What is the price of an asset paying (1,1,1) which means 1 after 1 period, 1 after 2 periods, and 1 after 3 periods.

On April 10, ABC inc. Enters in a swap contract for 10 years with a chartered bank to turn a fixed rate on liability of $150 million to floating rate. ABC wants to receive interest

Grounds for compulsory winding up A company may be wound up by the court under s.219 if: 1) The company so resolves by special resolution, 2) Default is made in delivering th

Please prove that the maximum throughput of input queued switch is 0.586 when switch size N approaches infinity. Assume the incoming traffic is uniformly distributed. Please dem

LIMITATIONS O F FINANCIAL ACCOUNTING 1. Simply transactions which can be calculated in terms of money can be recorded in the books of accounts. Actions, though important t