Understanding Deferred Tax Assets and Liabilities in Corporate
School: Western Sydney University - Course: CAS 200109 - Subject: Accounting
ACCT3007 Corporate Accounting Systems Autumn Semester Week 4 Tutorial Question Question 1 Textbook Chapter 18 Review Question 13 (p.762-p.763) Assume that for a particular company the only temporary difference for tax-effect accounting purposes relates to the depreciation of a newly acquired machine. The machine is acquired on 1 July 2019 at a cost of $250 000. Its useful life is considered to be five years, after which time it is expected to have no residual value. For tax purposes it can be fully written off over two years. The tax rate is assumed to be 30%. Required (a)Determine whether the deprecation of the machine will lead to a deferred tax asset, or a deferred tax liability. (b) What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2022. (a) Depreciation: 250,000/5 = 50,000 Tax base: 250,000/2 = 125,000 1
Use the following extract of a tax effect worksheet to answer(b)of this question: ($000)CarryingAmountTaxBaseDeductibleTemporaryDifferencesTaxableTemporaryDifferencesIncome Tax ExpenseIncome Tax Payable Assets Machinery (net)1000100 Deferred tax liability: 100,000 x 0.3 = 30,000 Machinery carrying amount: 250,000 - 50,000 x 3 = 100,000
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