Bowtock purchased an item of plant for $2,000,000 on 1 October 2000. It had an estimated life of eight years and an estimated residual value of $400,000. The plant is depreciated on straight-line basis. The tax authorities do not allow depreciation as a deductible expense. Instead, a tax expense of 40% of the cost of this type of asset can be claimed against income tax in the year of purchase and 20% per annum (on a reducing balance basis) of its tax base thereafter. The rate of income tax can be taken as 25%. REQUIRED: In respect of the above item of plant, calculate the deferred tax charge/credit in Bowtock’s income statement for the year to 30 September 2003 and the deferred tax balance in the balance sheet at that date. Note: work to the nearest $00
Q1 Bowtock purchased an item of plant for $2,000,000 on 1 October 2000. It had an estimated
life of eight years and an estimated residual value of $400,000. The plant is
straight-line basis. The tax authorities do not allow depreciation as a deductible expense.
Instead, a tax expense of 40% of the cost of this type of asset can be claimed against income
tax in the year of purchase and 20% per annum (on a reducing balance basis) of its tax base
thereafter. The rate of income tax can be taken as 25%.
REQUIRED:
In respect of the above item of plant, calculate the
income statement for the year to 30 September 2003 and the deferred tax balance in the
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