ACCA FR · Chapter 9 · Question 3 of 8
At the year end Eider Co's plant and equipment has a carrying amount of $800,000 and a tax base (tax written down value) of $600,000. The tax rate is 25%. What deferred tax balance arises?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Deferred tax liability of $50,000
Explanation
Taxable temporary difference = $800,000 - $600,000 = $200,000. When an asset's carrying amount is higher than its tax base, more tax will be payable in future, so a deferred tax liability arises: $200,000 x 25% = $50,000.
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