190 Paper F7 Answers to Examples September/December 2016 answEr ExamplE 2 to 2009 2010 2011 Total $ $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 6,600,000 Depreciation (200,000) (200,000) (200,000) (600,000) Profit 1,600,000 2,100,000 2,300,000 6,000,000 Tax – current (Wl) 300,000 575,000 625,000 1,500,000 – deferred (W2) - 1,200,000 1,575,000 1,725,000 4,500,000 100,000 50,000 - Deferred tax liability The temporary difference in this example is the difference between the carrying value of the asset (net book value) and its tax written down value after deducting the tax allowances. (W1) Income Tax working 2009 2010 2011 $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 Tax allowances - - 1,200,000 2,300,000 2,500,000 At 25% 300,000 575,000 625,000 (W2) Deferred tax working Book value 400,000 200,000 – Tax written down value – – – 400,000 200,000 – 100,000 50,000 – At 25% answEr ExamplE 3 to Revaluation Carrying value 342,000 Revalued to 258,000 less deferred tax 37,500 Revaluation reserve 220,500 600,000 Deferred tax Revalued amount Tax written down value 450,000 Temporary difference 150,000 37,500 @ 25% Deferred tax answEr ExamplE 4 to 2009 2010 $’000 $’000 Profit from operations 660 660 Warranties (160) - 500 660 Tax – current 165 125 – deferred (40) 40 Profit after tax 375 495 40 - Deferred tax asset The temporary difference is equivalent to the difference between the Statement of Financial Position accrual for warranties and the tax base of the warranty payments liability which is nil in 2009, because nothing has yet been paid.
190 Paper F7 Answers to Examples September/December 2016 answEr to ExamplE 2 2009 2010 2011 Total $ $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 6,600,000 Depreciation (200,000) (200,000) (200,000) (600,000) Profit 1,600,000 2,100,000 2,300,000 6,000,000 Tax – current (Wl) 300,000 575,000 625,000 1,500,000 – deferred (W2) - 1,200,000 1,575,000 1,725,000 4,500,000 Deferred tax liability 100,000 50,000 - The temporary difference in this example is the difference between the carrying value of the asset (net book value) and its tax written down value after deducting the tax allowances. (W1) Income Tax working 2009 2010 2011 $ $ $ Profit before depreciation 1,800,000 2,300,000 2,500,000 Tax allowances - - 1,200,000 2,300,000 2,500,000 At 25% 300,000 575,000 625,000 (W2) Deferred tax working Book value 400,000 200,000 – Tax written down value – – – 400,000 200,000 – At 25% 100,000 50,000 – answEr to ExamplE 3 Revaluation Carrying value 342,000 Revalued to 258,000 less deferred tax 37,500 Revaluation reserve 220,500 Deferred tax Revalued amount 600,000 Tax written down value 450,000 Temporary difference 150,000 @ 25% 37,500 Deferred tax answEr to ExamplE 4 2009 2010 $’000 $’000 Profit from operations 660 660 Warranties (160) - 500 660 Tax – current 165 125 – deferred (40) 40 Profit after tax 375 495 Deferred tax asset 40 - The temporary difference is equivalent to the difference between the Statement of Financial Position accrual for warranties and the tax base of the warranty payments liability which is nil in 2009, because nothing has yet been paid.
ACCA_F7_S16_Notes.docx