On 1 April 2015, the company rate of income tax changed from 35% to 30%. At the previous reporting date (30 June 2014) Monty Limited had the following tax balances:
-deferred tax assets $20 250
-deferred tax liabilities $15 000.
What is the impact of the tax rate change on income tax expense?

Question

On 1 April 2015, the company rate of income tax changed from 35% to 30%. At the previous reporting date (30 June 2014) Monty Limited had the following tax balances: 
-deferred tax assets $20 250
-deferred tax liabilities $15 000.
What is the impact of the tax rate change on income tax expense?

Quizplus · Accepted Answer

The deferred tax asset will increase by $750 (20,250 x (35% - 30%)). The deferred tax liability will decrease by $750 (15,000 x (35% - 30%)). The net effect on income tax expense will be an increase of $750.

On 1 April 2015, the Company Rate of Income Tax