FR – L2 – Q51 – Corporate Reporting and Compliance

Calculate Sharp Ltd's corporate income tax liability for 20X6 at a 34% tax rate.

Question

SHARP LTD (IV)
Using the information provided in “Sharp Ltd III” and assume that Sharp Ltd is subject to a higher tax rate of 34% in 20X6.

Required
(a) Calculate the corporate income tax liability for the year ended 31st December 20X6.

(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X6.

(c) Prepare a note showing the movement on the deferred tax account and thus calculate the deferred tax charge for the year ended 31st December 20X6.

(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X6.

(e) Prepare a note to reconcile the product of the accounting profit and the tax rate to the tax expense for year ended 31st December 20X6.

Answer

(a) Corporate income tax liability – year-ended 31st December 20X6

Tax payable profits (as before)	GH₵
Tax payable @ 34%	58,650

(b) Deferred tax liability

Temporary difference (as before)	GH₵
Deferred tax @ 34%	9,163

	GH₵
Balance b/f	1,335
Adjustment due to change in rate	178
Opening balance restated to 34% (1,335 × 3/30)	1,513
Statement of profit or loss (balancing figure)	7,650
Balance c/f	9,163

(d) Statement of profit or loss note

	GH₵
Current tax expense	58,650
Deferred tax expense relating to origination and reversal of temporary differences	7,650
Deferred tax expense resulting from increase in tax rate	178
Tax expense	66,478

(e) Tax reconciliation

	GH₵
Accounting profit	175,000
Accounting profit @ 34%	59,500
Tax effect of the fine (20,000 @ 34%)	6,800
Increase in opening deferred tax balances due to change in rate	178
Tax expense	66,478