Illustration of accounting treatment of deferred tax, Financial Accounting

Assignment Help:

Illustration of Accounting treatment of deferred tax

A Ltd., bought an item of plant at a cost of £100,000 in year 2000. The estimated useful life of the plant was 5 years and depreciation is on a straight line basis with no residual value. The company makes profits before tax of £200,000 and the corporation tax rate is 30%.  The item of plant has the following:

Year    1    2    3    4    5
Rate    30%    25%    20%    15%    10%

Required:
(for each of the five years)

i) Tax liability (corporation)
ii) Carrying amount, tax base, taxable temporary difference of the plant and the balance carried down on deferred tax account.
iii)    The deferred tax account
iv)    Final accounts extracts (Profit and loss + balance sheet)
Assume that the corporation tax liability is unpaid by the year end.

Corporation tax liability

 

 

2000

2001

2002

2003

2004

 

£

£

£

£

£

Profit before tax

200,000

200,000

200,000

200,000

200,000

Add back depreciation

  20,000

  20,000

  20,000

  20,000

  20,000

 

220,000

220,000

220,000

220,000

220,000

Less capital allowances

(30,000)

(25,000)

(20,000)

(15,000)

(10,000)

Taxable profits

190,000

195,000

200,000

205,000

210,000

Taxable liability  (30%)

(57,000)

(56,500)

(60,000)

(61,500)

(63,000)

 

133,000

136,500

140,000

143,5000

147,000

 

 

Carrying amount, tax base, and taxable temp diff.

 

 

2000

2001

2002

2003

2004

 

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

Carrying amount:  Cost

100

100

100

100

100

Accumulated depreciation

  20

  40

  60

  80

100

 

  80

  60

  40

  20

    -

Tax box:  Cost

100

100

100

100

100

               Accumulated capital all

(30)

(55)

(75)

(90)

(100)

 

70

45

25

10

     -

Taxable temp. difference

10

15

15

10

-

Bal c/d on deferred tax a/c (30%)

3

45

45

3

-

 

 

Deferred Tax Account

 

 

£ ‘000’

 

 

£ ‘000’

31/12/00

Bal c/d

   3

31/12/00

P & L (bal. fig)

   3

31/12/01

Bal c/d

4.5

1/1/01

Bal b/d

3

 

 

 

31/12/01

P & L (bal. fig)

1.5

 

 

 4.5

 

 

 4.5

31/12/02

Bal c/d

 4.5

1/1/02

Bal b/d

 4.5

31/12/03

P & L (Bal. fig)

4.5

1/1/03

Bal b/d

 4.5

31/12/03

Bal c/d

1.5

 

 

 

 

 

3

 

 

 

 

 

4.5

 

 

4.5

 

 

   3

1/1/04

Bal b/d

  3

 

Final accounts extracts

 

Income statement

 

 

2000

2001

2002

2003

2004

 

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

£ ‘000’

Profit before tax

200

200

200

200

200

Income tax

  60

  60

  60

  60

  60

Profit for the period

140

140

140

140

140

 

 

Workings:  Income tax expense

 

Current year estimated corporation tax liability

 

57

 

58.5

 

60

 

61.5

 

63

Add/(less) transfer to/(from) deferred tax a/c

 

  3

 

  1.5

 

   -

 

(1.5)

 

(3)

 

60

60.0

60

60

60

 

Balance Sheet

 

NON-CURRENT LIABILITIES

 

 

 

 

 

Deferred tax

3

4.5

4.5

3

-

CURRENT LIABILITIES

 

 

 

 

 

Current tax

57

58.5

60

61.5

63

 


Related Discussions:- Illustration of accounting treatment of deferred tax

Question, Broadway Scripts is a service-type enterprise in the entertainmen...

Broadway Scripts is a service-type enterprise in the entertainment field, and its manager, Joe Numbers, has only a limited knowledge of accounting. Joe prepared the following balan

Calculate the cash flow-agency costs, Tom Scott is the owner, president, an...

Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40

Define constant working capital, Q. Define Constant working capital? Th...

Q. Define Constant working capital? The supposition of constant working capital should be investigated. Net working capital is probable to increase in line with sales and so ad

Develop portfolio of investments and trades, The family next door just rece...

The family next door just received a $300,000,000 cash payout after winning the lottery. You talked with them and are trying to convince them to let you manage a portfolio of inves

Maturity of the debentures, ARG Co presently has $50m of fixed assets and l...

ARG Co presently has $50m of fixed assets and long-term debt of $10m. The issue of $3m of 9% debentures will raise fixed assets by $2m of buildings and machinery. There appears to

What are do you meant by an enterprise system, Question : i) Show the i...

Question : i) Show the interdependence of business strategy and Information Systems in an organization. ii) Distinguish using suitable examples between decision-support syst

Show equity and debt issues, A company is necessary by law to offer an issu...

A company is necessary by law to offer an issue of new equity finance on a pro-rata basis to its existing shareholders. This makes sure that the existing pattern of ownership and c

Determine the amount of retained earnings, From the information provided, d...

From the information provided, determine: 1.) The amount of retained earnings at December 31 and 2.) The amount of revenues for the period. Additional data: 1.)Expenses

Maximum loss method, a,b,c carried on business and their profit and loss ra...

a,b,c carried on business and their profit and loss ratio 3:4:5.they decided dissolve the partnership as on 1st july,2011.the following balance sheet..... creditors-10000 loan A/c-

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd