Reference no: EM133163207

Question - Information regarding tax for Wall Limited (WL) for the year ended 31st December 2021:

This is WL's first year operation, no prior tax assessment had been made, yet it was agreed with the Inland Revenue Department that the company is entitled to offset deferred tax liabilities and assets.

The following items are considered for the purpose of computing the deferred tax balance for the year ended 31 December 2021.

(i) Machine acquired at 1 January 2021 cost $90,000; depreciation charged for the year $15,000 and tax allowances $50,000.

(ii) WL spent $300,000 on research and development in the current period, and it is treated as an intangible asset amortized over 4 years. Tax authorities only allow the expense to be deducted over a 5-year period. Only $60,000 is allowed in this period.

(iii) WL entered into an agreement with its existing employees to provide health care benefits to retirees. WL provides a liability (accrual) of $30,000 as an expense of this plan. No payments to retirees were made for such benefits in the year. Health care costs are deductible for tax purposes only when payments are made to retirees.

(iv) During the period, the company incurred a fine of $8,000 which would be payable shortly in early 2022. Fines are not tax deductible.

The accounting profit before tax for the year was $200,000. Corporation tax rate is given as 20%.

Required -

(a) Calculate the corporate income tax liability for the year ended 31 December 2021.

(b) Make table showing the accounting base and tax base of the relevant items. Calculate the deferred tax charge or credit for the year ended 31 December 2021.