- 20 Marks
Title: FR – L2 – Q48 – Taxation
Question
Peak Ltd was incorporated on 1 January 20X4. In the year ended 31 December 20X4 the company made a profit before taxation of GH¢121,000.
During the period Peak Ltd made the following capital additions:
| GH¢ | |
|---|---|
| Plant | 48,000 |
| Motor vehicles | 12,000 |
During the period:
| GH¢ | |
|---|---|
| Accounting depreciation | 11,000 |
| Tax depreciation | 15,000 |
Tax is chargeable at a rate of 30%.
Required:
(a) Calculate the corporate income tax liability for the year ended 31st December 20X4.
(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X4.
(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 20X4.
(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X4.
Answer
(a). Corporate income tax liability – year-ended 31st December 20X4
| GH¢ | |
|---|---|
| Profit per accounts | 121,000 |
| Add: Depreciation | 11,000 |
| Less: Tax depreciation | (15,000) |
| Taxable profits | 117,000 |
| Tax payable @ 30% | 35,100 |
(b). Deferred tax liability
| GH¢ | |
|---|---|
| Carrying amount (48,000 + 12,000 = 60,000 – 11,000) | 49,000 |
| Tax base (48,000 + 12,000 = 60,000 – 15,000) | 45,000 |
| Temporary difference | 4,000 |
| Deferred tax liability required @ 30% | 1,200 |
(c). Movement on the deferred tax liability
| GH¢ | |
|---|---|
| Balance b/f | – |
| Statement of profit or loss (balancing figure) | 1,200 |
| Balance c/f | 1,200 |
(d). Statement of profit or loss note
| GH¢ | |
|---|---|
| Current tax expense | 35,100 |
| Deferred tax expense | 1,200 |
| Tax expense | 36,300 |
- Tags: axation, Current Tax, Deferred Tax, Profit or Loss, Tax Expense
- Level: Level 2
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