Illustration of deffered tax-financial statement, Financial Accounting

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Illustration of Deffered Tax

A firm bought an item of plant at a total amount of £50,000. During the first year, the firm provided for depreciation of 10,000. The item of plant has a capital allowance of`£15,000 for the first year.

Compute the carrying amount of the asset, the tax base and hence the temporary difference.

Carrying amount                               cost – depreciation

                                                         =50,000-10,000 =40,000

 

Tax base                                            cost – capital allowance

                                                         =50,000-15,000  =35,000

 

Temporary differences                       carrying amount – tax base

                                                          =40,000-35,000  =£5,000


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