Tafty Ltd purchased an equipment on 1 July 2019 for $500 000, and its useful life to be five years, with no residual value. Assume that the only temporary difference for tax-effect accounting purposes relates to the depreciation of the newly acquired equipment. For tax purposes it can be fully depreciated over two years. The tax rate is assumed to be 30 per cent.Required: SHOW YOUR WORKINGSDetermine whether the depreciation of the equipment will lead to a deferred tax asset, or a deferred tax liability?

Depreciation is charged to record reduction in value of assets over the period of time. Several…

Answered: Tafty Ltd purchased an equipment on 1…

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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Tafty Ltd purchased an equipment on 1 July 2019 for $500 000, and its useful life to be five years, with no residual value. Assume that the only temporary difference for tax-effect accounting purposes relates to the depreciation of the newly acquired equipment. For tax purposes it can be fully depreciated over two years. The tax rate is assumed to be 30 per cent.

Required: SHOW YOUR WORKINGS

Determine whether the depreciation of the equipment will lead to a deferred tax asset, or a deferred tax liability?

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