- 6 Marks
FR – Mar 2023 – L2 – Q2c – Financial Reporting Standards and Their Applications
Calculation of deferred tax liability considering temporary differences in various assets and liabilities, including tax base and carrying values.
Question
The Financial Accountant of Abodie Ltd is finalising the financial statements of Abodie Ltd for the year ended 31 August 2021. The following items are being considered for deferred tax purposes:
- At year end, Abodie Ltd’s property, plant & equipment had a tax base and carrying value of GH¢72 million and GH¢95 million, respectively.
- The company’s provision for decontamination costs was GH¢11 million (appropriately discounted) at the year end. Decontamination costs are tax deductible when paid.
- The company had inventory with a carrying value of GH¢24 million. This did not agree with the tax base because of a GH¢3 million write-down for obsolete items. Tax relief is only granted for inventories upon sale.
- The company incurred GH¢15 million in respect of new software development during the year, which was capitalised and will be amortised over the next 5 years. Full year’s charge is required in the first year of completion or purchase. This cost was deducted in the current year for tax purposes. The company is liable for income tax at 30%.
Required:
Compute the company’s deferred tax liability at 31 December 2021.
Find Related Questions by Tags, levels, etc.
- Tags: Deferred Tax, Inventory Write-down, Property, software development, Tax Base, Temporary Differences
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAR 2023
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