Reference no: EM132920817

Problem 1: On January 1, 20x1, ABC Co. does not have any temporary differences. However, during the year, ABC identified that temporary difference may result from a warranty expense of ?120,000 that was recognized for financial reporting during 20x1. For taxation purposes, warranty expense is tax deductible only when paid. Warranty costs paid during the year totaled ?50,000. It is expected that the remaining accrued warranty costs will be paid as follows: ?40,000 in 20x2 and ?30,000 in 20x3. Income tax rate for 20x1 is 30%. However, a new tax law was enacted on December 31, 20x1. Under the new law, tax rate for 20x2 is 32% and tax rate in 20x3 and years thereafter is 35%. How much is the deferred tax asset on December 31, 20x1?