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Hi Chris,
Below questing is from Kaplan ST
At 31 December 20X8, the tax base of Weiser’s net assets was $7 million less than their carrying amounts. This excludes the gain on the revaluation of the building. The income tax rate of Weiser is 30%.
Deferred tax C/F from TB – Cr 1,350
Gain on Revaluation – 4,000
Carrying value of the assets 31/12/20X8 – 34,500 (Include revaluation gain)I calculated deferred tax liability as follows
Temporarily difference (34,500-7,000) = 27,500
(CV>TB = DT liability)Deferred tax position @ 30% (27,500/100*30) = 8,520 (SFP)
Movement (8,250-1,350) = 6,900
Deferred tax on revaluation (4,000/100*30) = 1,200 (OCI)
Deferred tax (6,900-1200) = 5,700 (SPL)
Study text answer for above question is,
Deferred tax liability (NCL) – 3,000
Deferred tax on revaluation – 1,200
Deferred tax (SPL) – 750could you please help me to understand where i have done the mistake when I calculating deferred tax. and also what is the meaning of “the tax base net assets”
Appreciate your response.
Hi,
The tax base is the tax equivalent value of the amounts in the financial statements. Here we are told that they are less than the amounts in the accounts so the 7 million is the temporary difference. We then apply the tax rate to this amount to calculate the deferred tax value. This is a liability given that the carrying value is greater than the tax base.
Thanks
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