Tag (SQ): Accounting Profit

Continuing from the previous year. The following information is relevant for the year ended 31st December 20X5.

(a) Capital transactions

(b) Interest payable
On 1st April 20X5 the company issued GH₵25,000 of 8% convertible loan stock. Interest is paid in arrears on 30th September and 30th March. Assume that tax relief on interest expense is only given when the interest is paid.

(c) Interest receivable
On 1st April Shey Ltd purchased debentures having a nominal value of GH₵4,000. Interest at 15% pa is receivable on 30th September and 30th March. Assume that interest income is not taxed until the cash is actually received.

(d) Provision for warranty
In preparing the financial statements for the year to 31st December 20X5, Shey Ltd has recognised a provision for warranty payments in the amount of GH₵1,200. This has been correctly recognised in accordance with IAS 37 and the amount has been expensed. Assume that tax relief on the warranty cost is only given when the expense is paid.

(e) Fine
During the period Shey Ltd has paid a fine of GH₵6,000. The fine is not tax deductible.

(f) Further information
The accounting profit before tax for the year was GH₵125,000.

Tax is chargeable at a rate of 30%.

Required
(a) Calculate the corporate income tax liability for the year ended 31st December 20X5.

(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X5.

(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 20X5.

(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X5.

(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 20X5.