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BPP Question 139 Page 40

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › BPP Question 139 Page 40

  • This topic has 2 replies, 3 voices, and was last updated 3 years ago by P2-D2.
Viewing 3 posts - 1 through 3 (of 3 total)
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  • February 29, 2020 at 7:13 pm #563587
    frollo
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    “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?

    March 1, 2020 at 11:42 am #563630
    mkanesimmons
    Participant
    • Topics: 5
    • Replies: 2
    • ☆

    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?

    March 4, 2020 at 7:48 pm #564256
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6750
    • ☆☆☆☆☆

    Hi,

    I think that there is a mistake in the question. The carrying amount at the end of the first year should be $900,000 ($1,000,000 cost – $100,000 annual depreciation).

    Thanks

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