The following information was extracted from the financial records of Panda Limited: equipment purchased on 1 July 2014 for $140 000 (accounting depreciation 10% straight line; tax depreciation 20% straight line). If the company tax rate is 30%, the deferred tax item that will be recorded by Panda Limited at 30 June 2015 is which of the following?
A) Dr Deferred tax asset $14 000
B) Cr Deferred tax asset $4200
C) Dr Deferred tax liability $14 000
D) Cr Deferred tax liability $4200

Question

Quizplus · Accepted Answer

The deferred tax liability is calculated based on the difference between the accounting depreciation and the tax depreciation. Accounting depreciation is $14,000 (10% of $140,000), and tax depreciation is $28,000 (20% of $140,000). The difference is $14,000, which at a tax rate of 30% results in a deferred tax liability of $4,200.

The Following Information Was Extracted from the Financial Records of Panda