Deferred tax liability for revaluation of asset

Hi all,

I am trying to make sense of double entry for deferred tax liability arises from revaluation of asset. I have worked out the following solutions for this but am unsure if this is correct, please help to read through and point out any mistake. Thanks!

Deferred tax liability for revaluation of asset
A non-current asset costing $2,000 was acquired at the start of year 1. It is being depreciated straight line over four years, resulting in annual depreciation charges of $500. The capital allowances granted on this asset are as follows. Tax rate is 25%. Suppose that the asset is revalued to $2,500 at the end of year 2.

Capital allowance $
Year 1 800
Year 2 600
Year 3 360
Year 4 240
Total capital allowances 2,000

Depreciation $
Year 1 500
Year 2 500
Year 3 500
Year 4 500
Total depreciation 2,000

Year 1
At the beginning
Dr 2,000 Plant, property and equipment
Cr 2,000 Cash / Account payables

At the end
Dr 500 Depreciation
Cr 500 Accumulated depreciation

Deferred tax liability arises because of accelerated capital allowance. Assume profit before depreciation at the end of year 1 is 800. In P&L, the profit after depreciation will be 300 (800 – 500), therefore a tax expense of 75 (300 × 25%) will be recognized. For tax purpose, the profit after capital allowance will be 0 (800 – 800), therefore no tax will be payable to tax authority. In order to balance the entry, we need to credit deferred tax liability. If depreciation equals to capital allowance, profit after depreciation / capital allowance will be the same, so we will credit tax payable instead of deferred tax liability.
Dr 75 Tax expense
Cr 75 Deferred tax liability

Year 2
At the end
Dr 500 Depreciation
Cr 500 Accumulated depreciation

Dr 25 Tax expense
Cr 25 Deferred tax liability

Dr 1,500 Plant, property and equipment
Dr 1,000 Accumulated depreciation
Cr 2,500 Revaluation surplus

As the carrying amount of asset increased by 1,500, the depreciation available for deduction will increase by 1,500 as well. However tax base remains the same, so as capital allowance. This gives rise to deferred tax liability of 375 (1,500 × 25%).
Dr 375 Revaluation surplus
Cr 375 Deferred tax liability

Year 3
If the asset is sold at the beginning of year 3 for 2,500, there will be no tax expense in P&L as the carrying amount of the asset has been revalued to 2,500. For tax purpose, however, there will be a tax payable to tax authority of 475 (1,900 × 25%) for this sale as the tax base of the asset is only 600. This sale will reverse the previously accumulated deferred tax liability.
Dr 475 Deferred tax liability
Cr 475 Cash / Tax payable

The revaluation surplus will then be transferred to retained earnings.
Dr 2,125 Revaluation surplus
Cr 2,125 Retained earnings

If the asset continues to be used in year 3, the depreciation for year 3 will be 1,250 (carrying amount of 2,500 over 2 years).
Dr 1,250 Depreciation
Cr 1,250 Accumulated depreciation

The capital allowance available, however, will be 360. Assume profit before depreciation at the end of year 3 is 1,250. In P&L, the profit after depreciation will be 0, therefore there will be no tax expense. For tax purpose, the profit after capital allowance will be 890, therefore tax payable to tax authority will be 222.50 (890 × 25%).
Dr 222.50 Deferred tax liability
Cr 222.50 Cash / Tax payable

The revaluation surplus realized through depreciation of 750 (1,250 – 500, difference between original and revalued depreciation) will be transferred to retained earnings.
Dr 750 Revaluation surplus
Cr 750 Retained earnings

Year 4
If the asset is sold at the beginning of year 4 for 1,250, there will be no tax expense in P&L as the carrying amount of the asset is now 1,250. For tax purpose, however, there will be a tax payable to tax authority of 252.50 (1,010 × 25%) for this sale as the tax base of the asset is only 240. This sale will reverse the previously accumulated deferred tax liability. With this, the total accumulated deferred tax liability of 475 (75 + 25 + 375) will be completely reversed (222.50 + 252.50).
Dr 252.50 Deferred tax liability
Cr 252.50 Cash / Tax payable

The revaluation surplus will then be transferred to retained earnings.
Dr 1,375 Revaluation surplus
Cr 1,375 Retained earnings

If the asset continues to be used in year 4, the depreciation for year 3 will be 1,250
Dr 1,250 Depreciation
Cr 1,250 Accumulated depreciation

The capital allowance available, however, will be 240. Assume profit before depreciation at the end of year 3 is 1,250. In P&L, the profit after depreciation will be 0, therefore there will be no tax expense. For tax purpose, the profit after capital allowance will be 1,010, therefore tax payable to tax authority will be 252.50 (1,010 × 25%).
Dr 252.50 Deferred tax liability
Cr 252.50 Cash / Tax payable

The revaluation surplus realized through depreciation of 750 (1,250 – 500, difference between original and revalued depreciation) will be transferred to retained earnings.
Dr 750 Revaluation surplus
Cr 750 Retained earnings