A company commenced business on 1 July 2022. On 30 June 2023, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information: Assets Liabilities
Cash $20 000 Accounts payable $50 000
Inventories 60 000 Provision for annual leave 8 000
Plant 200 000
Accumulated depreciation (20 000)
Additional information:
The plant was acquired on 1 July 2022. Depreciation for accounting purposes was 10% (straight-line method), while 20% (straight-line) was used for tax purposes.
The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
$$\begin{array} { | l | l | l | l | l | l | l | }
\hline & \begin{array} { c }
\text { Caryyng } \
\text { amount }
\end{array} & \begin{array} { c }
\text { Future } \
\text { taxable } \
\text { amount }
\end{array} & \begin{array} { c }
\text { Future } \
\text { deductible } \
\text { amount }
\end{array} & \text { Tax base } & \begin{array} { c }
\text { Taxable } \
\text { temparary } \
\text { differences }
\end{array} & \begin{array} { c }
\text { Deductible } \
\text { temparary } \
\text { differences }
\end{array} \
\hline \text { Assets } & & & & & & \
\hline \text { Cash } & & & & & & \
\hline \text { Irveritories } & & & & & & \
\hline \text { Plart } & & & & & & \
\hline & & & & & & \
\hline \text { Liabilities } & & & & & & \
\hline \text { Accourits payable } & & & & & & \
\hline \text { Provrn arrual leave } & & & & & & \
\hline & & & & & & \
\hline & & & & & & \
\hline \text { Deferred tax liability } & & & & & & \
\hline \text { Deferred tax asset } & & & & & & \
\hline
\end{array}$$ The deferred tax asset is:

Question

A company commenced business on 1 July 2022. On 30 June 2023, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information: Assets Liabilities
Cash $20 000 Accounts payable $50 000
Inventories 60 000 Provision for annual leave 8 000
Plant 200 000
Accumulated depreciation (20 000)
Additional information:
The plant was acquired on 1 July 2022. Depreciation for accounting purposes was 10% (straight-line method), while 20% (straight-line) was used for tax purposes.
The tax rate is 30%.
Using the following worksheet, determine the deferred tax asset and deferred tax liability.
$$\begin{array} { | l | l | l | l | l | l | l | } 
\hline & \begin{array} { c } 
\text { Caryyng } \
\text { amount }
\end{array} & \begin{array} { c } 
\text { Future } \
\text { taxable } \
\text { amount }
\end{array} & \begin{array} { c } 
\text { Future } \
\text { deductible } \
\text { amount }
\end{array} & \text { Tax base } & \begin{array} { c } 
\text { Taxable } \
\text { temparary } \
\text { differences }
\end{array} & \begin{array} { c } 
\text { Deductible } \
\text { temparary } \
\text { differences }
\end{array} \
\hline \text { Assets } & & & & & & \
\hline \text { Cash } & & & & & & \
\hline \text { Irveritories } & & & & & & \
\hline \text { Plart } & & & & & & \
\hline & & & & & & \
\hline \text { Liabilities } & & & & & & \
\hline \text { Accourits payable } & & & & & & \
\hline \text { Provrn arrual leave } & & & & & & \
\hline & & & & & & \
\hline & & & & & & \
\hline \text { Deferred tax liability } & & & & & & \
\hline \text { Deferred tax asset } & & & & & & \
\hline
\end{array}$$ The deferred tax asset is:

Quizplus · Accepted Answer

The deferred tax asset arises from the difference in depreciation rates for accounting (10%) and tax purposes (20%). The plant's cost is $200,000, and for tax purposes, the depreciation would be $40,000 (20% of $200,000), leaving a tax base of $160,000. For accounting purposes, the depreciation is $20,000 (10% of $200,000), leaving a carrying amount of $180,000. The difference is $20,000, which is a temporary difference that will reverse in the future. Since this difference will result in deductible amounts in the future, it creates a deferred tax asset. Calculating the deferred tax asset: $20,000 * 30% = $6,000. However, the correct answer is A) $2,400, indicating a misunderstanding in the question's details or a misinterpretation of the provided information. The correct calculation should consider the specifics of the temporary differences and the tax rate to accurately determine the deferred tax asset or liability. Given the provided information and typical calculations, the expected answer would involve calculating the tax effect of the temporary difference, but the correct answer as per the question's expectation is $2,400, which suggests a specific aspect of the scenario might have been overlooked or misinterpreted in this explanation.

A Company Commenced Business on 1 July 2022 The Deferred Tax Asset Is: A) $2 400

A Company Commenced Business on 1 July 2022 The Deferred Tax Asset Is:
A) $2 400