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for question 191 of the 2016-2017 BPP kit, I do not understand part ii) of the paragraph. why is there an addition of 50 (500-450) in calculating the answer? what is the logic behind? may you explain?
I would help you if I could but I do not have any BPP material in my possession (nor any Kaplan material either)
Type out the question with all relevant information and I’ll get back to you
Alternatively, give me the name of the company and I’ll if I can find it on the internet
here is the question. 191 The following information relates to an entity.
(i) At 1 January 20X8 the carrying amount of non-current assets exceeded their tax written down value by
$850,000.
(ii) For the year to 31 December 20X8 the entity claimed depreciation for tax purposes of $500,000 and
charged depreciation of $450,000 in the financial statements.
(iii) During the year ended 31 December 20X8 the entity revalued a property. The revaluation surplus was
$250,000. There are no current plans to sell the property.
(iv) The tax rate was 30% throughout the year.
What is the provision for deferred tax required by IAS 12 Income Taxes at 31 December 20X8?
A $240,000
B $270,000
C $315,000
D $345,000
Answer my question pleaseAm I correct if I say it’s option D?
Your question asks is “why is there an addition of 50 (500-450) in calculating the answer? what is the logic behind?”
There is an additional 50 difference between the tax written down value and the carrying value, as follows (and I’m going to put in ‘pretend’ start figures – I suggest you do this … often!)
Let’s pretend that carrying value was $3,000
Therefore tax written down value was $2,150
Then we have this year’s depreciation and capital allowances of $450 and $500 respectively
So our figures change to … carrying value $2,550 and $1,650 respectively
We have a revaluation that increases carrying value by $250 and our figures now become:
$2,800 and $1,650
There’s a difference of $1,150 and, at 30%, that equates to $345
So the answer is option D
How’s that for you?
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