Question 3a i
A deferred tax liability is the amount of income tax payable in respect of taxable temporary differences. A deferred tax asset is the amount of income tax recoverable in future periods in respect of deductible temporary differences.
A temporary difference is the difference between the carrying amount of an asset or liability in the statement of financial position and its tax base.
Required:
(i) Define the tax base of an asset as outlined in IAS 12 – Income Taxes. Use your definition to compute the tax base of the following assets:
– A machine was purchased during the current accounting period for $250,000. Depreciation of $50,000 was charged in arriving at the accounting profit for the current period. A deduction of $100,000 was given against taxable profits by the local tax authorities against the taxable profits of the current period. The remaining cost will be deductible in future periods, either as depreciation or as a deduction on disposal.
– A current asset of $60,000 relates to interest receivable. The related interest revenue will be taxed on a cash basis when it is received. (4 marks)