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“Isaac & Joseph Co purchased new machinery on 1 January 20X5 for $1,000,000. It has a residual value of $200,000, with the useful life deemed to be 8 years. The plant is depreciated on a straight-line basis.
Tax allowances of 50% of the cost of the asset can be claimed in the year of purchase, as depreciation is not allowed for tax purposes. The rate of income tax is 30%
Identify whether a deferred tax asset or liability should be recognised at 31 December 20X5 and at what amount?”The answer is a liability of $60000 but why is the carrying amount of the asset $700000? Shouldn’t the carrying amount be $900000 and the answer $120000?
i struggled understanding this too. The question before is almost identical but they use the carrying amount not the depreciable amount. the only difference i could see was that in Q138 there was also a repeated reducing yearly tax allowance of 20% whereas Q139 was just the first year allowance. Could that have something to do with it?
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