Question

DEKO Berhad is in the process to finalized its financial statements. The following is the list of assets and liabilities as at 31 December 2019

Accounts	Carrying amounts (RM)
Property	5,000,000
Equipment	2,000,000
Leasehold land	3,000,000
Prepaid insurance	60,000
Trade receivables	220,000
Accrued dividend	10,000
Unearned rental income	46,000
Trade payable	35,000
Provision for employee benefits	120,000

Additional information:

1. The balance amount of deductible for tax purposes in the future periods relating to the property is RM4,850,000 and the equipment is RM 2,150,000.
2. Leasehold land is a non-qualifying asset.
3. Tax authority use cash basis in determining the income and expenses.
4. The current tax for the financial year ended 31 December 2019 is RM300,000. No balance for deferred tax and the corporate tax rate is 22 percent.

Required:

(a) Discuss why the tax expense in the statement of profit or loss may not same as tax charge by the tax agency.

5. marks)

(b) Prepare a table showing the tax based, temporary difference and deferred tax for each of the above items as at 31 December 2019.

15. arks)

(c) Determine the amount of tax expense as charged in the statement of profit or loss and the deferred tax liability in the statement of financial position as at 31 December 2019.

Answer 1

(a) Tax expenses as per statement of profit and loss may be differ than as charged by tax agency due to the following reason:
(i) Tax cherged to statement of profit and loss is self computed and tax charged by the tax authority at the time of final
assessment at where some of expenses as considered as deduction at the time of self assessment may be disallowed as
deduction or and escaped income may be added back to taxable income.
(ii) Estimation of provision in statement of accounts. For example in accounts, we mostly make provision many time as lump
sum basic while tax agency determine pn exact basis.
(b)	RM	RM
Tax Base	Temporary difference	Deferred Tax @ 22%	Remarks
Higher depreciation on property for tax purpose (50,00,000 - 48,50,000)	1,50,000	33,000	Deferred Tax Liability
Lower depreciation on Equipment for tax purpose (20,00,000 - 21,50,000)	1,50,000	33,000	Deferred Tax Assets
Lease hold land is non qualifying assets that means no deduction for tax. So it is permanent difference, to be ignore for deferred tax	-	-	-
Prepaid Insurance	60,000	13,200	Deferred Tax Liability
Unearned rental Income	46,000	10,120	Deferred Tax Assets
Provision for Emp. Benefits	1,20,000	26,400	Deferred Tax Assets
Total Temporary Difference & Deferred Tax Assets (net of Deferred tax Liability)	1,06,000	23,320	Deferred Tax Assets
* It is assumed that all the balance as shown in various ledger i.e. prepaid insurance,
Unearned rental Income, provision for employee benefits related to current year only.
(C ) Tax expenses shall be shown in Dec 2019:
	RM
Current Tax	3,00,000
Deferred Tax (A)	-23,320
Tax Expenses	2,76,680
Deferred Taax Assets as on Dec 31, 2019 $ 23,320 as shown under Non current Assets.