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Hi Sir,
1. Can I ask tax base is that considered as residual expenditure if it is for PPE?
2. May I know WHY when the carrying amount of an asset bigger than the tax base will be considered as deferred tax liability, while carrying amount of an asset smaller than the tax base will be considered as deferred tax asset. When the carrying amount of an liability bigger than tax based will be considered as deferred tax asset, while carrying amount of an liability smaller than the tax base will be considered as deferred tax liability???? What is the logic behind?
3. May I know the tax expense that recognised in SOPL is based on profit before tax to calculate or based on taxable profit? Is this the actual tax payable pay to income tax authorities (from tax comp) or it is just an estimation of tax amount based on accounting profit?
4. Moreover, if the tax installment paid is 5000 and then there is a refund 4000, this will be considered as tax recoverable or tax liability?
Thanks you1 – No. Tax base is the value of an asset that is still to be allowable as a deductible when calculating tax payable – it’s the cost of an asset less the capital allowances already given
2 Tax base is compared with net book value (carrying value) which is calculated as cost less accumulated depreciation. Because the taxman doesn’t allow depreciation as a tax-deductible amount (instead, the taxman allows you to claim capital allowances)
So, at any one time after the first year, the net book value (carrying value) will likely differ from the tax written-down valueNow, apply this to your second question – if carrying value is lower than tax written-down value, the taxman is due to let us have an amount as tax-deductible greater than our depreciation charge so that means we have a deferred tax asset
And, by applying similar logic, that should answer the whole of your second question
3 – Based on taxable profit – and that itself is based on accounting profit as adjusted for add-backs like depreciation and deductions like capital allowances
4 – Unlikely scenario! Estimated tax liability will be calculated and used within the tax T account to compute the tax charge in the statement of profit or loss. The tax computation will be submitted to the tax authorities. They will look at the computation and (probably) agree the calculation. But, of course, the taxman may amend that computation. When the time comes for payment of the tax liability (Dr Current Tax account, Cr Cash account) that will likely leave a balance (debit or credit) on the Tax T account
If there happens to be a refund – $4,000 in your post – that will be reflected by the entry Dr Cash account Cr Current Tax account
Much of this post of yours will be answered when you start to learn about F6 Taxation paper
OK?
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