Balchin Limited had the following deferred tax balances at reporting date:
-Deferred tax assets $12 000
-Deferred tax liabilities $30 000
Effective from the first day of the next financial period,the company rate of income tax was reduced from 40% to 30%.The adjustment to income tax expense to recognise the impact of the tax rate change is:

Question

Quizplus · Accepted Answer

The deferred tax liabilities and assets need to be adjusted to reflect the new tax rate. The net deferred tax liability is $18,000 ($30,000 - $12,000) at 40%. At 30%, it becomes $13,500 ($18,000 * 30/40). The adjustment is a credit of $4,500 to income tax expense.

Balchin Limited Had the Following Deferred Tax Balances at Reporting