Reference no: EM132950658

Milton Ltd is in the consumer goods industry. Its deferred tax liability at the end of the previous year was $600,000 and this consisted of the tax effect of depreciation loss in excess of depreciation, its only temporary difference then.

In the current year ended 31 December 20X7, Milton introduced a new range of consumer products where goods are sold subject to warranty period of two years. In view of the uncertainty surrounding sales of the new products, the directors of the company have decided to create a provision for product warranty account. The provision provide for the year was $400,000.

For the year ended 31 December 20X7, the details of the non-current assets of Milton Ltd are as follow: $

1.1.20X7 (Accounting)

Balance b/d : Cost 400,000

Accumulated depreciation 100,000

31.12.20X7 Current year depreciation 100,000

1.1.20X7 (Taxation)

Balance b/d : Cost 400,000

Accumulated depreciation loss 200,000

31.12.20X7 Current year depreciation loss 150,000

Income tax is 30%

Required:

Problem 1: Prepare the deferred tax account for the year 20X7.