Comments

  1. avatar says

    Dear Mike,

    Request your guidance to understand how do we know the amount of deferred tax to be released in future years. In example 2, 100,000 was DT in 2009, then you released 50,000 each in 2010 and 2011 . why cant we release entire 100,000 in 2010. Thanks

    • Avatar of MikeLittle says

      Because we’re comparing the company’s book value of their asset with the taxman’s value of their asset (comparing net book value with tax written down value)

      In year 2, according to the working shown at the top of page 177(!) the figures are $200,000 compared with a tax value of $zero

      The difference is now $200,000. Apply the tax rate to that amount and there is a deferred tax liability to carry forward of $200,000 * 25% = $50,000

      But we brought forward a deferred tax liability of 25% * $400,000 = $100,000

      Therefore we can release $50,000 of that $100,000 this year and next year we shall release the remainder

      Is that ok?

    • Avatar of MikeLittle says

      Well, play it again! And again! There’s no limit to the number of times you can listen to the lecture.

      And, if there’s any particular point that you don’t understand, post your question on this site on the Ask the Tutor page and I’ll get back to you

  2. avatar says

    Hi,

    Please i need help with this question which goes thus:

    In a case where my accumulated withholding tax for the year exceeds my current tax asset, what is the acceptable accounting treatment for the over the years?

    will this result in any treatment as Non-current asset item?

    Thanks

    • Avatar of MikeLittle says

      Is this an F7 question? If it is, it almost certainly will not appear in an F7 exam!

      In addition, I think that you have missed off one or two words.

      I’m not really sure what “In a case where my accumulated withholding tax for the year exceeds my current tax asset, what is the acceptable accounting treatment for the over the years?” means

      Are you sure that you have copied the question correctly?

      • avatar says

        Yea its an F7 question.

        What am trying to say is this:

        how do you go about an issue where current tax asset has been over provided for. And the time period to recoup the excess is more than a year. Do treat the unrecoupable part as Non-current asset.

      • avatar says

        Yea its an F7 question.

        What am trying to say is this:

        how do you go about an issue where current tax asset has been over provided for. And the time period to recoup the excess is more than a year. Do you treat the unrecoupable part as Non-current asset?

      • Avatar of MikeLittle says

        Well (I don’t recognise this as any F7 question I remember seeing!) if the time for recovering the overpayment has passed the I imagine you will have to write off that over-payment. It cannot be an asset if the company can no longer recover it

      • avatar says

        I am also sorry MikeLittle, Ya it was a bit fast and my comment was also impulsive. I should not have ignore the fact that you are providing such a precious lectures free of cost from which hundreds of people from least developing countries or those who cannot attend classes due to their busy schedule are getting the benefit from.

        hats off to your work.
        God bless you

        Asheem

  3. Avatar of tejot says

    Sir I am currently sitting for P2 exam and I got confused with the below question given in the course notes?

    Q1.)Jurgis bought property in old town for $500,000 on 1 January, 2005. On 31 December, 2007 the property had a carrying value of $470,000 and was revalued to $800,000. The tax written down value at 31 December, 2007 was $500,000, and the tax rate is 30%.”

    The Answer in course notes is
    “Property (800,000 – 34,000) 766,000
    Deferred tax liability (300,000 @ 30%) (90,000)
    Revaluation surplus (330,000 – 14,000) 316,000
    NB depreciation of 800 over 47 years = 17 pa
    The 14,000 is 2 years × the difference between new depreciation (17,000) – old depreciation (10,000) ie 2 × (17,000 – 10,000) ”

    However what has been taught in the question in this lecture the treatment should have been

    Dr.Revaluation Reserve 90,000
    Cr. Deferred Tax Liability 90,000

    thereby the ending balance in Revaluation reserve (330,000 – 90,000)=240,000 Cr.

    Please help me understand which treatment is coherent with the latest standards.

    Thank you

  4. avatar says

    Hi,

    I have a small query regarding example 2.

    I understand how we arrive at the deferred tax calculation and that the 100 000 has to be released.

    However I am struggling to understand why the 100 000 is released in amounts of 50 000 each year?

    Also what happens to the deferred tax of 50 000 from 2005?

    Help will be much appreciated.

    Thanks

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