SNZ Inc. purchased machinery and equipment in the amount of $30,000 on January 1, 2013. SNZ plans to depreciate the asset straight-line over 20 years with no salvage value. For tax purposes these assets are to be depreciated using a capital cost allowance rate of 20%. The half-year rule applies. SNZ pays tax at a rate of 25%. What is the amount of the Deferred Tax Asset or Liability on December 31, 2013?

Question

Quizplus · Accepted Answer

The book depreciation is $1,500 ($30,000/20 years). For tax, the depreciation is $3,000 (half-year rule: $30,000 * 20% * 0.5). The tax base is lower, creating a deferred tax liability: ($3,000 - $1,500) * 25% = $375.

SNZ Inc Purchased Machinery and Equipment in the Amount of $30,000