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Hi, pls I would like an explanatory solution to the question below.
Thank you.
The following information relates to Carpati:
1) The carrying amount of plant and equipment at 30 September 20X6 is $1,185,000
2) The tax written down value of plant and equipment at 1 October is $405,000
3) During the year ended 30 September 20X6, the company bought plant and equipment of $290,000 which is eligible for tax depreciation
4) Carpati bought its freehold property in 20W5 for $600,000. It was revalued in the 20X6 accounts to $1,500,000. Ignore depreciation on buildings. No tax allowances were available to Carpati on the buildings.
Required
Draft the note to the statement of financial position at 30 September 20X6 omitting comparatives, in respect of deferred tax. Work to the nearest $’000. Assume a current income tax rate of 30%. Tax depreciation is at 25% on a reducing balance basis. The income tax rate enacted for 20X7 is 28%.
I believe that the last time you posted this question, I asked you to give me a reference so that I could see the question in hard copy.
Let me ask you again to give me a reference!
Two points here Deolyd!
1 – I don’t have a BPP study text, and
2 – why don’t you check the answer as given in the BPP study text?
Surely BPP give an explanation to the question / answer
Okay, I think I’m missing something.
Maybe I don’t know what reference means. How do I get you the reference so you can please take a look at the question. Thank you.No, you’re not missing anything. What my post suggested to you was that you work through the question for yourself with the benefit of the BPP suggested answer
Your original post gives me the (I presume) full question and asks for a draft of the deferred tax note. The question is from the BPP Study Text Exam Question Bank, question 24
I have understood you perfectly.
What I can’t understand is why you can’t check through the answer for yourself – surely BPP have given you the answer in their question bank!
When you have done that, you may still have a problem with one or two particular issues. If so, post again with those issues
ok… so i got stuck on this question too.
i have a few questions but i will ask them in turn so that i can try to work it out for myself. i have looked at the answer tho and i still dont get it.
1. when it says that the carrying value at 30 sep x6 is 1185, i assumed that the purchases during the year were included. but the answer shows the addition of 290 as an addition separately. why did i assume that?
because first it gives the year end balance of carrying value.
second, it says that ‘during the year ended 30 sep x6, the company bought…’so, if the PPE was bought during the year, surely the balance given at 30 sep shd include the addition.. no?
please ignore question in previous post, as i have understood.
2. the answer uses 28% tax instead of 30% … why?
the answer is reproduced below:
Accelerated tax depreciation w1—– 186
Rrevaluation w2————————- 252w1:
Tax depreciation
At 30 Sep x6 Carrying Amount————————————–1185
Tax base
1 oct x5 ——— 405
addition ——— 290
————————-
total ————– 695
less dep 25%— (174)
————————————————————————– (521)
Temp diff ————————————————————– 664
Def Tax @ 28% ——————————————————1862. Revaluation
Temp diff = 1500 – 600 = 900
def tax @ 28% = 252
Does the last line of the question as typed out by deolyd not give us a clue?
“The income tax rate enacted for 20X7 is 28%.”
Does that answer it?
We use the most recent projected tax rate that will apply when the temporary difference reverses.
OK?
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