- 15 Marks
FR – L2 – Q52 – Financial Reporting Standards and Their Applications
Calculate deferred tax liability for Francisca Ltd for 20X4, considering depreciation, interest, development costs, and revaluation, and show where changes are charged/credited.
Question
On 30 June 20X3 Francisca Ltd had a credit balance on its deferred tax account of GH¢1,340,600 all in respect of the difference between depreciation and capital allowances.
During the year ended 30 June 20X4 the following transactions took place.
(1) GH¢45 million was charged against profit in respect of depreciation. The tax computation showed capital allowances of GH¢50 million.
(2) Interest receivable of GH¢50,000 was reflected in profit for the period. However, only GH¢45,000 of interest was actually received during the year. Interest is not taxed until it is received.
(3) Interest payable of GH¢32,000 was treated as an expense for the period. However, only GH¢28,000 of interest was actually paid during the year. Interest is not an allowable expense for tax purposes until it is paid.
(4) During the year Francisca Ltd incurred development costs of GH¢500,600, which it has capitalised. Development costs are an allowable expense for tax purposes in the period in which they are paid.
(5) Land and buildings with a carrying amount of GH¢4,900,500 were revalued to GH¢6 million.
The tax rate is 30%. Francisca Ltd has a right of offset between its deferred tax liabilities and its deferred tax assets.
Required
Calculate the deferred tax liability on 30 June 20X4. Show where the increase or decrease in the liability in the year would be charged or credited.
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