The finance director of Hyden Ltd is unsure about the deferred tax implications for two of the items in the company’s statement of financial position.   Item 1: Hyden Ltd has a balance of $100,000 in its prepaid insurance account. The insurance is deductible when the payment to the insurance is made.     Item 2: Hyden Ltd purchased an item of property, plant and equipment (PPE) 5 years ago for $1,000,000. The depreciation expense for accounting purpose is $50,000 per annum, resulting an accumulated depreciation of $250,000 for the year. The taxation office allows this type of PPE to be depreciated at $25,000 per annum.   Required:   (a)   Calculate the deferred tax implication (deferred tax asset or deferred tax liability) for each of the above items, in accordance with IAS 12 / AASB 112 Income Taxes. Assume a tax rate of 30%.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The finance director of Hyden Ltd is unsure about the deferred tax implications for two of the items in the company’s statement of financial position.

 

Item 1:

Hyden Ltd has a balance of $100,000 in its prepaid insurance account. The insurance is deductible when the payment to the insurance is made.

 

 

Item 2:

Hyden Ltd purchased an item of property, plant and equipment (PPE) 5 years ago for $1,000,000. The depreciation expense for accounting purpose is $50,000 per annum, resulting an accumulated depreciation of $250,000 for the year. The taxation office allows this type of PPE to be depreciated at $25,000 per annum.

 

Required:

 

(a)   Calculate the deferred tax implication (deferred tax asset or deferred tax liability) for each of the above items, in accordance with IAS 12 / AASB 112 Income Taxes. Assume a tax rate of 30%.

ANSWER HERE:                

 

Carrying Amount

Tax
Base

Taxable

Temp Diffs

Deductible
Temp Diffs

Prepaid insurance

 

 

 

 

PPE

 

 

 

 

 

 

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