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  1. 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

  2. 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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