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Question) A piece of machinery cost $500. Tax depreciation to date has amounted to $220 and depreciation charged in the financial statements to date is $100. The rate of income tax is 30%.
What is the tax base, deductible temporary difference and taxable temporary difference ?
For this question, the tax base is
$500 – $220 = $280Carrying value of asset is
$500 – $100 = $400Deductible temporary difference(DTD) arises when the tax base exceeds the carrying value.
Taxable temporary difference(TTD) arises when the carrying value exceeds the tax base.
Therefore,
DTD = TTD
400 – 280 = 120Therefore DTD = TTD = 120 right sir ?
Actually i think i figured it out already. Since the carrying value of $400 is more than the tax base of $280 . A taxable temporary difference of $120 will arise.
There wont be any deductible temporary difference right sir ?
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