On 1 April 20X2,the company rate of income tax was changed from 35% to 30%.At the previous reporting date (30 June 20X1)Montgomery Limited had the following tax balances:
-Deferred tax assets $26 250
-Deferred tax liabilities $21 000
What is the impact of the tax rate change on income tax expense?

Question

Quizplus · Accepted Answer

The decrease in the income tax rate from 35% to 30% results in a decrease in the deferred tax liability of $750 (35% - 30% = 5% reduction x $21,000 deferred tax liability). This reduction will decrease income tax expense, resulting in a decrease of $750. There is no impact on the deferred tax asset in this scenario. Therefore, the correct answer is B, decrease of $750.

On 1 April 20X2,the Company Rate of Income Tax Was