Calculate the Corporation Tax Liability of Full Tax Co. for Y/A: 20212. Using the Barbados Income Tax Act or any other relevant document explain the treatment of the items included or omitted from the income tax computation.

Accounting Profit after Tax $5,500,000 Add Back: Depreciation $1,500,000 Interest expense $15,000…

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

- $15,000 in respect of recovery of commercial debts for One-Third Tax Co. The
company was not reimbursed this amount.
- $50,000 relating to the purchase of new subsidiary
- $400,000 to increase the share capital of the company
8. General expenses include $72,000 for the school fees of the director's son.
9. The capital allowances have been calculated at $130,550. Based on the items included
in the fixed asset schedule.
10. There was an increase in wages of $1,000,000 which qualifies for Employment Tax
Credit (all other conditions to qualify for this credit was met).
11. The tax rates for general Barbados is as follows:
Corporate income tax (CIT) rates
The following rates apply to taxes on corporate income:
Taxable income bracket / Entity
Taxable income up to 1 million Barbados dollars (BBD)
Taxable income exceeding BBD 1 million but not exceeding BBD 20 million
Taxable income exceeding BBD 20 million but not exceeding BBD 30 million
Taxable income exceeding BBD 30 million
CIT rate (%)
5.5
3.0
2.5
1.0
12. Assume capital allowance rate of 5 % p. A for building/ leasehold improvements.
13. All amounts are in Barbadian currency.
14. As at the 31 December 2020, the company has prior year's tax losses as follows:
$300,000
2013
2015 $5,000,000
2020 - $4,000,000
Tax losses can be carried forward for a maximum of 7 years and is restricted to 50% of
the tax income in the current year.

Full Tax Co. is incorporated and tax resident in Barbados. The audited financial statements for
Full Tax
Co. for year-end December 31, 2022, show an accounting profit after tax of $5,500,000 after
charging the
following:
Depreciation $1,500,000
• Tax for the year $500,000
• Property Tax $900,000
• Interest expense $15,000
Preference dividends of $40,000
Legal fees $1,110,000
• Insurance of $750,000
• Bad debts $40,000
Foreign Travel $20,000
Repairs and Maintenance $1,500,000
• General expenses $600,000
Other Information
●
●
1. Property Tax of $600,000 was paid for the property on which the company's factory is
located; $300,000 for the office premises and $100,000 for the director's home.
2. The insurance was paid for the factory and office premises.
3. The bad debt expense includes a general provision of $10,000 and a specific provision of
$30,000.
4.
The company paid interim ordinarily dividends totaling $100,000.
5. Repairs and Maintenance include for $500,000 removing the office ceramic floor titles
and replacing it with wooden flooring.
Included in the company's total assessable income is exempt income of $50,000.
$16,500 relates to expenses incurred in earning this exempt income.
7. Legal fees include:
6.
- $40,0000 in respect of recovery of commercial debts for Full Tax Co.
- $10,000 in respect of recovery of commercial debts for Half Tax Co. The company was
reimbursed this amount.

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