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Hi Sir,
The question is from the BPP booklet Q. 139 on page 40.
Question:
“Isaac & Joseph purchased new machinery on 1 January 20X5 for $1,000,000. It has a residual value of $200,000, with the useful life deemed to be 8 years. The plant is depreciated on a straight line basis.
Tax allowances of 50% of the cost of the asset can be claimed in the year of purchase, as depreciation is not allowed for tax purposes. The rate of income tax is 30%
Identify whether a deferred tax asset of liability should be recognised at 31 December 20X5 and at what amount?”
ANSWER:
Tax Liability = $60,000.
How is this the case? This answer assumes that we only compare the depreciable value ($800,000 – $100,000 (depreciation)) of the carrying value to the tax base (500,000)?
This directly conflicts with the logic used in the below’s lecture example?
Please help! This has made me so confused as to where I am going wrong!!
David
Hi,
It looks wrong to me. They should be looking at the carrying value of the asset of $900,000 ($1,000,000 cost less $100,000) depreciation.
Thanks
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