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Hi,
In Weston Group question, there is an adjustment regarding defined benefit: The benefits paid in the period by the trustees of the scheme were $7 million. Weston operates in a country which only allows tax relief when contributions are paid into the scheme. The tax base was therefore zero at 31 January 2015 and 31 January 2016. The tax rate paid by Weston is 25%. The defined benefit expense is included within administrative expenses.
Can you help me understand why it say “the tax base was therefore zero”?
From what I understand, the tax authority only allows tax relief when contributions are paid into the scheme. Doesn’t that mean we have to do something with the contribution paid-in of $19m in the question – recognize a deferred tax liability of 19 * 25% on that paid-in amount?
Thanks
Hi,
The tax base will be zero as the tax authorities will ignore the payments made in to the scheme by the trustees, and will only give tax relief on payments made by the company.
Thanks
Thanks you. Only now I read the word trustee… A follow up question is if the amount of 7m is not given any tax relief, shouldn’t we remove the 7m from the total Contribution paid in of 19m in the question, thus giving a carrying amount of net obligation at year end of 60 + 7 = 67 and calculate deferred tax on that balance?
Dont know why the question give this information and in the answer there was no number relating to this 7m
Thanks
Hi,
The benefits paid by the trustees are the amounts paid out, so the net cash effect is nil.
Thanks
Thanks Chris, I got it
Just want to take this chance to say thank you for all your support to all my questions in the last 3 months, they helped me a lot with my self study that I doubt I can answer myself. The new lecture on SoCF is brilliant. Hope that I can perform my best tomorrow.
Thanks again for your support.
Hi Duy Bach,
I’m so glad to have helped you these last few months and thank you for your kind words, it’s great to feel that what we do makes a difference and is appreciated. It’s a small world when you’re studying in Vietnam and I’m her miles away in the UK helping you out!
Just stay calm and confident tomorrow, don’t overthink anything, and you’ll be fine.
Thanks
Chris
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