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Hi Mike.We have CA of 50000 in balance sheet and tax base of 60000 as per tax base,and a deferred tax asset of 3000 balance as at the beginning of 2016.The depriciable plant was bought on 2014 at 100000.it is depriciated at 25%,and tax allowance is allowed at 20%.the plant was a sold at 30 June 2015 at 80 0000,therefore tax allowance and tax base as at 30 June were 10000 and 12500(you are told that tax man does apportion tax allowance or six months,what is the deferred tax?or we just write off 3000 deferred tax by crediting it and debiting income statement since is sold?.Thanks.
This is tricky trying to follow your explanation but it seems to me that there is a balancing charge
I have a tax written-down value of $50,000 after the $10,000 capital allowance for the 6 months to date of sale
Proceeds of $80,000 gives a balancing charge of $30,000 (taxman has allowed us $20k, $20k and $10k)
Should only have had $20,000 with the benefit of hindsight so need to repay $30,000
Book value is $37,500, sold for $80,000 gives a book profit of $42,500
“or we just write off 3000 deferred tax by crediting it and debiting income statement since is sold?”
– where’s $3,000 from?
3000 is the deferred tax asset since the the asset was bought on 1 January 2014.Calculateda as follow 2014:IfRS depriciation as :100000 *25%=25000…..Tax allowance is 100000*20%=20000.Tax base is therefore 100000-20000=80000,and C.amount is 100000-250000=75000.Temporary D. is 800000-75000=5000*30% tax rate( 🙂 you were given 30% tax rate am sorry)this would result in 1500.D.Tax asset in 2014.
In 2015 same tax rate,depreciation and tax allowance,therefore 1500 deferred tax asset.Adding 2014 and 2015 deferred asset will result in 3000 D.tax asset at 2015 year end 31 dEC.
In 2016 June,we sold an asset and got 80000 proceeds.Year end is 31 December.And you are told that tax man allow propotionate tax allowance which means he will calculate tax allowance by saying 100000*20%*6/12=10000.where he had 60000 at the beginning of 2015 as tax base,and IfRS calculate depriciation to be 50000(C.o/b carrying amount)/2-remainiing useul life*6/12=12500.
As at 30 June we have C.A 50 0000 AND Tax Base 60000 as the opening balance on 1 Jan.2016 and 10000 Tax allowance and 12 500 depriciation.and look,50000-12500=C.A37500,and 60000-10000=50000.T.B.
Temporary diference is 12500,and multiplied by 30%=3750,which is not adjustment,i think am to long,so do we have deferred tax ?,hey Mike am rusted in my study table,ohk,thanks.Have you got a question name for this? Or an exam reference?
That certainly does look like a deferred tax asset ……. until we sell!
ohk it makes sense “UNTILL WE SELL”.we writeoff the balance.I think you are right.When we sell the asset it seems as if we writeoff its related D.T liability/Asset.Please correct me if am wrong.No its just an excercise in the IfRS book not an exam paper.
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