Breifly outline the tax consequences of each of these four matters for the year end of 31 decemeber 2021. A business is preparing its financial statements for the year end 31 December 2021and has the following items it needs to consider:i)ii)iii)Development costs of £600,000 were capitalised in the statement of financialposition two years ago, on 1 January 2020, and are being amortised over 4years from that date. Tax relief was provided in full as the costs were incurred.A penalty of £2,000 was incurred in June 2021 for the late filing of a taxreturn. Payment was made in July 2021. Penalties are not an allowablededuction for tax purposes.At 31 December 2021 land, held within PPE, was revalued from its cost of£1.7 million to £2.4 million. The revaluation gain is taxable on disposal of theasset.iv)The taxable profit for the year to 31 December 2021 is £8 million. £600,000 ofincome tax is outstanding at the year end and is due for payment by 30September 2022.Tax is payable at 20% in the years ending 31 December 2020 and 2021.

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Accounting

Breifly outline the tax consequences of each of these four matters for the year end of 31 decemeber 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

Breifly outline the tax consequences of each of these four matters for the year end of 31 decemeber 2021.

A business is preparing its financial statements for the year end 31 December 2021
and has the following items it needs to consider:
i)
ii)
iii)
Development costs of £600,000 were capitalised in the statement of financial
position two years ago, on 1 January 2020, and are being amortised over 4
years from that date. Tax relief was provided in full as the costs were incurred.
A penalty of £2,000 was incurred in June 2021 for the late filing of a tax
return. Payment was made in July 2021. Penalties are not an allowable
deduction for tax purposes.
At 31 December 2021 land, held within PPE, was revalued from its cost of
£1.7 million to £2.4 million. The revaluation gain is taxable on disposal of the
asset.
iv)
The taxable profit for the year to 31 December 2021 is £8 million. £600,000 of
income tax is outstanding at the year end and is due for payment by 30
September 2022.
Tax is payable at 20% in the years ending 31 December 2020 and 2021.

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