Homework Help is Here – Start Your Trial Now!
Business
Accounting
ILLUSTRATION 3 Taxable Temporary Differences A company purchased an asset costing shs.1,500 at the end of 2008 the carrying amount is shs.1,000. The cumulative depreciation for tax purposes is shs.900 and the current tax rate is 25%. Required; Calculate the deferred tax liability for the asset. SOLUTION Firstly, what is the tax base of the asset? It is shs.1,500 – shs.900 = shs.600. In order to recover the carrying value of shs.1,000, the entity must earn taxable income of shs.1,000, but it will only be able to deduct shs.600 as a taxable expense. The entity must therefore pay income tax of shs.400 × 25% = shs.100 when the carrying value of the asset is recovered. The entity must therefore recognize a deferred tax liability of shs.400×25% = shs.100, recognizing the difference between the carrying amount of

ILLUSTRATION 3 Taxable Temporary Differences A company purchased an asset costing shs.1,500 at the end of 2008 the carrying amount is shs.1,000. The cumulative depreciation for tax purposes is shs.900 and the current tax rate is 25%. Required; Calculate the deferred tax liability for the asset. SOLUTION Firstly, what is the tax base of the asset? It is shs.1,500 – shs.900 = shs.600. In order to recover the carrying value of shs.1,000, the entity must earn taxable income of shs.1,000, but it will only be able to deduct shs.600 as a taxable expense. The entity must therefore pay income tax of shs.400 × 25% = shs.100 when the carrying value of the asset is recovered. The entity must therefore recognize a deferred tax liability of shs.400×25% = shs.100, recognizing the difference between the carrying amount of

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter18: Accounting For Income Taxes
Section: Chapter Questions
Problem 5RE: Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year....
See similar textbooks
icon
Related questions
Question
ILLUSTRATION 3 Taxable Temporary Differences A company purchased an asset costing shs.1,500 at the end of 2008 the carrying amount is shs.1,000. The cumulative depreciation for tax purposes is shs.900 and the current tax rate is 25%. Required; Calculate the deferred tax liability for the asset. SOLUTION Firstly, what is the tax base of the asset? It is shs.1,500 – shs.900 = shs.600. In order to recover the carrying value of shs.1,000, the entity must earn taxable income of shs.1,000, but it will only be able to deduct shs.600 as a taxable expense. The entity must therefore pay income tax of shs.400 × 25% = shs.100 when the carrying value of the asset is recovered. The entity must therefore recognize a deferred tax liability of shs.400×25% = shs.100, recognizing the difference between the carrying amount of
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning
SWFT Comprehensive Volume 2019
SWFT Comprehensive Volume 2019
Accounting
ISBN:
9780357233306
Author:
Maloney
Publisher:
Cengage
SEE MORE TEXTBOOKS