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?2. What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2022?

Tafty Limited has purchased an asset for 5 years for accounting and 50% for taxation purposes.

Answered: Determine whether the depreciation of…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 5RE: Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year....

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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?

2. What would be the balance of the deferred tax asset or deferred tax liability as at 30 June 2022?

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