KER commenced operations in 2013.The company has recorded an accrual for warranty in its books during the year ended December 31,2014 amounting to $100,000.During the year 2014,customers required service from goods sold in 2013 amounting to $60,000.No similar expenditures were made during 2013.KER accrued warranty expenses totalling $100,000 for 2013 and 2014.As a result of the information above,what is the amount of deferred taxes that will appear on the 2014 statement of financial position? Assume a 20% tax rate for both years.

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Quizplus · Accepted Answer

The warranty expense is deductible for tax purposes when paid, not when accrued. The $40,000 difference ($100,000 accrued - $60,000 paid) creates a temporary difference, leading to a deferred tax asset of $8,000 ($40,000 x 20%).

KER Commenced Operations in 2013