- February 29, 2020 at 7:13 pm #563587frolloMember
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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?March 1, 2020 at 11:42 am #563630mkanesimmonsParticipant
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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 #564256P2-D2Keymaster
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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).
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