Reference no: EM132532956
Problem 1: The carrying amount of TROY's property, plant and equipment at 31 December 2003 was £155,000 and the tax written down value was £115,000. The following data relates to the year ended 31 December 2004:
(i) At the end of the year the carrying amount of property, plant and equipment was £230,000 and the tax written down value was £135,000. During the year some items were revalued by £45,000. No items had previously required revaluation. In the tax jurisdiction in which TROY'S operates revaluations of assets do not affect the tax base of an asset or taxable profit. Gains due to revaluations are taxable on sale.
(ii) TROY began development of a new product during the year and capitalised £30,000 in accordance with IAS 38. The expenditure was deducted for tax purposes as it was incurred. None of the expenditure had been amortised by the year end. The corporate income tax rate is 30%. The current tax charge was calculated for the year as £22,500.
Question (a) TROY's accountant is confused by the term 'tax base'. Explain briefly what is meant by 'tax base'?
Question (b) Calculate the taxable temporary difference to be accounted for at 31 December 2004 in relation to property, plant and equipment and development expenditure.
Question (c) Calculate the amount should be charged to the revaluation surplus at 31 December 2004 in respect of deferred tax.