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On 1 January 2020, the deferred tax liability brought forward for Caca Bhd
On 1 January 2020, the deferred tax liability brought forward for Caca Bhd. was RM255,000 Statement of financial position as at 31 December 2020 Assets RM RM Property 6,000,000 Accumulated depreciation (2.740.000 3,260,000 Plant Accumulated depreciation 3,250,000 (1,150,000 2,100,000 Research and development Accumulated depreciation 810,000 (225.000) 585,000 RM RM Liabilities Provision for warranties 28,500 Additional Information: 1. Tax rules allows full deduction for research and development when incurred. 2. 3. 4. Tax rules allow full deduction on cash spent on actual repairs and refunds on warranties given Tax rate changed from 25% to 20% The plant was revalued and the surplus on revaluation was RM210,000 Tax depreciated value (tax base) of property was RM2,750,000 Tax depreciated value (tax base) of plant was RM1,945,000. 5 6. Required: EA30703_Financial Accounting and Reporting 4 Page 2 of 11 SEPTEMBER 2020 CONFIDENTIAL For the year ended 31 December 2020: (a) Calculate the deferred tax expense, (7 marks) (b) Prepare the deferred tax account. (3 marks) [10 marks)
Expert Solution
Solution :-
| # | Situation | Evaluation | Difference | DTD / (TTD) |
| a | As research expenditure is allowed fully in tax books & it is depreciated in Accounting books, it creates Taxable temporary difference because the carrying amount of asset > tax base of the asset. Tax base of Asset = 0 (because nothing is deductible further) Carrying amount of asset = 5,85,000 |
Taxable Temporary Difference | Taxable temporary difference = Carrying amount - Tax base of asset = 5,85,000 |
-5,85,000 |
| b | Provision for warranty (liability) / Carrying amount of liability = 28,500 Tax base of the liability = carrying amount of liability - amount deductible = 28,500-28,500 = 0 As Carrying amount of liability > Tax base of liability, it creates Deductible temporary difference |
Deductible temporary difference | Deductible temporary difference = Carrying amount - Tax base of asset = 28500-0 = 28,500 |
28,500 |
| c | Carrying amount of Plant = 2,310,000 (including revaluation surplus) Tax base of the plant = Amount deductible for tax purposes = 1,945,000 As Carrying amount of Plant > Tax base of Plant, it createsTaxable temporary difference |
Taxable Temporary Difference | Taxable temporary difference = Carrying amount - Tax base of asset = 2,310,000 - 1,945,000 = 365000 |
-3,65,000 |
| d | Carrying amount of Property = 3,260,000 Tax base of the Property = Amount deductible for tax purposes = 2,750,000 As Carrying amount of Property > Tax base of property, it creates Taxable temporary difference |
Taxable Temporary Difference | Taxable temporary difference = Carrying amount - Tax base of asset = 3,260,000 - 2,750,000 = 510000 |
-5,10,000 |
| -14,31,500 |
Hence pre tax difference (Taxable temporary difference) = 14,31,500
So, deferred tax liability = Tax difference * tax rate
= 14,31,500 * 20%
= RM 286,300
Change in tax rate
| Opening Bal in Deferred Tax @ 25% = | 255000 |
| Pre tax difference = 255000/25% | 1020000 |
| DTL @ new rate 20% = 1020000 * 20% | 204000 |
Journal Entries
| Deferred Tax Liability A/c | 51000 | |
| To Income Tax expense A/c | 51000 | |
| Income Tax expense A/c | 286300 | |
| To Deferred Tax Liability A/c | 286300 |
| Deferred Tax A/c | |||||
| Date | Particulars | Dr. Amt | Date | Particulars | Cr. Amt |
| 01-01-2020 | By Bal b/d | 2,55,000 | |||
| 31-12-2020 | To Income Tax Expense | 51,000 | |||
| 31-12-2020 | To Income Tax Expense | 2,86,300 | |||
| 31-12-2020 | To Bal c/f | 4,90,300 | |||
| 5,41,300 | 5,41,300 |
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