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saiyini.
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- October 2, 2020 at 2:53 pm #587220
For the year ended 30 September 20X2, KJ’s statement of profit or loss included a profit before tax of $247,000. KJ’s expenses included political donations of $19,000 and entertaining expenses of $11,000.
KJ’s statement of financial position at 30 September 20X2 included plant and machinery with a carrying value of $168,500. This is comprised of plant purchased on 1 October 20X0 at a cost of $280,000 and machinery purchased on 1 October 20X1 at a cost of $150,000.
KJ depreciates all plant and machinery on the straight line basis at 10% per year.
All expenses other than depreciation, amortisation, entertaining, taxes paid to other public bodies and donations to political parties are tax deductible.
Tax depreciation is deductible as follows:
50% of additions to property, plant and equipment in the accounting period in which they are recorded
25% per year of the written-down value (i.e. cost minus previous allowances) in subsequent accounting periods except that in which the asset is disposed of.
The corporate tax on profits is at a rate of 25%.Calculate the tax payable by KJ for the year to 30 September 20X2.
(Your answer should be rounded down to the nearest $.)
$
Accounting profit 247,000
Adjustments:
Add back: disallowed expenses (19,000 + 11,000) 30,000
Add back: accounting depreciation (280,000 + 150,000) × 10% 43,000
Less: tax depreciation (W1) (110,000)
_______
Taxable profits 210,000
_______
Tax at 25% 52,500Tax depreciation: $
First year allowance 150,000 × 50% = 75,000
Annual allowance (280,000 – 140,000 FYA 50% for 30/9/X1) × 25% = 35,000
_______
Total tax depreciation 110,000Can someone please explain how the Tax depreciation part is worked out?
October 2, 2020 at 4:26 pm #587230Hi Saiyini, which parts not making sense for you?
As the question states the TAX DEPRECIATION is:
• 50% depreciated in year of purchase
• 25% in the following years (year 2,3,4…)We are calculating the depreciation in 2002 so all assets acquired between 01 Oct 2001 – 30 September 2002 are depreciated @ 50%. They purchased an asset on the 01 Oct 2001 so this is depreciated @ 50%.
• 150 000 x 50% = 75 000All other assets not bought between 01 Oct 2001 – 30 September 2002 are depreciated @ 25% of their CARRY VALUE.
• Asset purchased for 280 000 on the 01 Oct 2000 will be depreciated @ 25% of it’s carry value as this wasn’t a purchase in the current financial year but in a prior financial year:
• 280 000 x 50% = 140 000 (depreciation for 1st year, 01 Oct 2000 – 30 Sep 2001)
• 140 000 x 25% = 35 000 (Depreciation for 2nd year, 01 Oct 2001 – 30 Sep 2002)Total Tax depreciation 01 Oct 2001 – 30 Sep 2002: 75 000 + 35 000 = 110 000
Hope this helps
October 2, 2020 at 6:04 pm #587234That makes sense thank you so much
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