Question

Rakaposhi Plc. bought an asset for $150,000. Entity uses straight line method to depreciate the asset over 5 years time. There is no residual value. On the other hand tax authorities require entity to depreciate the asset as following: Year1 = 80,000, Year2 = 25,000, Year3 = 20,000, Year4 = 15,000, and Year5 = 10,000.
If the tax rate is 20%.
Assume that the accounting profit before tax for the years Year1 to Year5 is $60,000
Calculate the current tax and deferred tax amount to be recognized in SPL and SFP for five years.

urgent

Answer 1

Deffered Tax is to be calculated basis temporary difference.
Calculation of Temporary Difference
Year	Depreciation as per straight Line method	Depreciation allowable as per Tax Authorities	Difference	Deffered Tax Expense	Deferred Tax Asset/Liabilty	DTA/DTL
1	30000	80000	50000	10000	10,000	DTL
2	30000	25000	-5000	-1000	9,000	DTL
3	30000	20000	-10000	-2000	7,000	DTL
4	30000	15000	-15000	-3000	4,000	DTL
5	30000	10000	-20000	-4000	-

Year 1	Accounting Base	Tax Base		Accounting Entry
Asset value	150000	150000		Deffered Tax Liability Dr	10,000
Less: Depreciation	30000	80000		To P&L		10,000
Base	120000	70000
Year 2	Accounting Base	Tax Base
Asset value	120000	70000		P&L Dr	1,000
Less: Depreciation	30000	25000		To Deffered Tax Laibility		1,000
Base	90000	45000
Year 3	Accounting Base	Tax Base
Asset value	90000	45000		P&L Dr	2,000
Less: Depreciation	30000	20000		To Deffered Tax Laibility		2,000
Base	60000	25000
Year 4	Accounting Base	Tax Base
Asset value	60000	25000		P&L Dr	3,000
Less: Depreciation	30000	15000		To Deffered Tax Laibility		3,000
Base	30000	10000
Year 5	Accounting Base	Tax Base
Asset value	30000	10000		P&L Dr	4,000
Less: Depreciation	30000	10000		To Deffered Tax Laibility		4,000
Base	0	0