- March 23, 2021 at 3:56 pm #615044sooMember
- Topics: 4
- Replies: 10
Hi, would like to get some help on this question. I wonder if my answer isn’t correct. If wrong, kindly assists on this & the commentary part. Thanks.
Discuss, with suitable computations, how the situations below will impact on the accounting for deferred tax under IAS12 Income Taxes in the group financial statements of Victory for the year ended 31 October 20×3. Tax rate is 30%.
On 1 November 20×2, Victory purchased an item of property, plant and equipment for $12 million which qualified for a government capital grant of $2 million. The asset has a useful life of five years and is depreciated on a straight line basis. Capital allowances are restricted by the amount of the grant. Assume a tax written down allowance of 25% per annum.
My answer is:
Depreciation= ($12mil-$2mil) /5years = $2mil/yr
Carrying amount= $8mil
Capital allowance= $12mil x 25% = $3mil/yr (restricted to $2mil)
Tax written down value= $12mil-$2mil= $10mil
Deferred tax asset= $2mil x 30% = $0.6mil
The carrying amount of property plant & equipment $8mil is higher than tax base $10mil as the capital allowance is restricted to the amount of grant $2mil.
Thus, deferred tax asset amount to $0.6mil.
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