SUGGE$"r"it,i $OLUTION

FRS 112 lncome taxes

Question 1 (FAR500, Mar 2005, extract)

B (i) Yes,ifthereisalegal rightofoffseibetweencurrenttaxassetanderr,, :taxliab.OR where the DT assets and DT liab. are related to income tax ie' by thesarne tax authority on the same taxable entity or different entities.

(ii) DT assets and DT liabiities should be presented separately from ott.le,i :,*tsand liabilities. They should not be classified as cunent assets or curr€rri rbilities

Question 2 (FAR 500, Oct 2008, extract)

i. Deferred Taxa. The tax base is RM85,000.

b. The tax base would be RM350 as fines and penalties are nr":r

c. Tax base is nil because it taxed on a cash basis.

d. Computation of deferred tax

ibie

CostLess depn/ Cap. allowance

Carryingamount8,000(800)7.200

Tax base

8,000(2,000)

6.000

cj lax

'l1a/o

itr

Question 3 (April 2Ai1)

{a} Determination of TTD/DTD

I'

t;,

@c

items Carryingvalue

Tax base TTD

Equipment 40,000 23,200 1

Bank Loan 10,000 10,000Accrued lnterest 500 0Research & Development Costs 3,000 0Accounts Receivable (3,500 + 350) 3,850 3,850Provision for doubtful debts 350 0Prepaid travellinq expenses 200 20aProvision for warranties 770 0Accrued fines & oenalties 100 100TOTAL ,g

SUGGESTED SOLUTION

'{c) Deferred tax liability account

Question 4 (FAR 500, Apr 2OOB, extract)

c. Taxable temporary difference (TTD) and deductible temporary difference (DTD)

Carrying Tax TTD DTDValue Based

RM'000 RM'000 RM'000 RM'000Property, plant and 32p00 28100 3.600equipmentDevelopment exp. 4,000 0* 4,000Account Receivable 7,000 7,000lnventory 3,600 3,600Bank 4,800 4,800Trade Payables 4,000 4,000Lease Payable 15,000 15,000Accrued expenses 500 0 500Penalties Payable 2OO NIL*Provn for Warranties 1,000 0* 1,000Provn for doubtful debts 500 0 500Deferred Tax Payable 900 9001.1.2007Retained Profits 9,300 3,900Share Capital 20,000 20,000

7,600 2,000

tleterred tax lta assetsitems Carrying

valueTax base TTD DTD

TOTAL 19,800 1,620Tax Rate = 260/o

Deferred Tax liabilitv 5,148Deferred tax Assets 421 2A

RM RMlS: Restatemeni(4o/o x 1 1,000)

444 Balance b/di11.000 x 30%)

3,300

Balance c/d 4.727 lncome statement 1.867

5,167 5,167

* Refer to workings

SUGGESTED SOLUTION

Workings: Calculation of tax base

Development expenditure RM'000Cost 4,000Capital allowance 4,000Tax base 0

Penalties pavable * not allowed for taxation - permanent difference

Provision for Warranties RM'0001,000Cost

Amount deductible for future taxation 1.000Tax base 0

Question 5 (Jan 2012)

(a) Schedule of temporary differences

Item Carryingamount

Tax Base (rrD) {DrD)

RM RM RM RMQuick Design

20109/09 Cost 550,000 550,000Accumulated depreciation(1Oo/o x 3 yrs) (165,000)lnitial allowance (10%) (s5,000)Annual allowance (20o/o x 3 vrs) (330,000)31nA11 Carrying amount I ggS,OOO

Tax base i 165,000 i zz0.0o0

Creative Desiqn15/06/10 Cost 300,000 300,000Accumulated depreciation(10o/o x 2 vrs) (60,000)lnitial allowance (10%) (30,000)Annual allowance (2Oo/o x 2 vrs) (120,000)31t1A11 Carrying amount

Tax base240,000

150,000 90,000

Development cost 90.000 90,000Account receivable 75,000 75 000Provision for doubtful debt 10,000 0 10,000Provision for warranties 13,000 0 13,000

TOTAL 400,000 23,000

(b) Deferred tax liability/asset computation

Net temporary differences = 400,000 - 23,000 = 377,OOA (TTD)Defened Tax Liability = 377,OO0 x 30 % = RM113,100

{c) Tax expense

Deferredtaxexpense = 113,100-111,600= RM1,500

Current tax expense = (120,000 x 30%) - 't,500

= 36,000 - 1,500

= 34,500

Question 6 (April 2010)

a) For year ended 3111212008

Carrying AmtCost (1/1/08)

Tax baseTemp. diff

Deferred tax liability

MachineM/VehiclesRetirement Benefit Liability

Tax rateDeferred tax liability

SUGGESTED SOLUTION

Machine M/Vehicle RetirementBenefits

RM RM RM

60,000 30,000

2250412,000 7,500 0

12,000 4,500 4,000

TTD DTD Net TD

-Accum Depre 20%x60kx3y 36,00020%x30kx3y 18,000

cA (31/12108)

Tax Base:

24,OOO 12,000 4,000

Cost 60,000 30,000-Accum Cap All (40olox60,000) (24,AOA)

(20%x60,000x2y) (24,000)25clcx30kx3y

RM12,OOO

4,500

RM RM

4,00016,500 4,000 12,500

z\ 16"/o

3,250

SUGGESTED SOLUTION

For year ended 31112/2OOg

Carrying AmtBal bld 1/1l0gNew additionsBal c/d 31112109Less. Accum

Depre

Carrying amt31tQtAg

Tax Base:Cost-Accum Cap All

{40%x80,000)(20%x60,000x3y)(25%x30kx4y)

Tax baseTemp. difference

Deferred Tax liability

MachineMA/ehiclesRetirement Benefit Liabilityi4,000+2,ggg;

Def. tax liability

TTDRM

16,0006,000

22.AAA

28,000 6,000

Machine

RM

60,00020,000

MA/ehicle

RM

30,000

RetirementBenefits

RM

4,0002.000

2Oo/ox60l<x4y2oo/o x29k(2Qo/ox3Ol<x4y)

80,000(48,000)(4,000)

30,000

(24,OOO)

6,000

000

80,000

(32,000)(36,000)

30,000

(30,000)12,OO0

16,000 6,000

DTDRM

6,000

6,000

16,000X260/0

4.10q

Net TDRM

6,000

Deferred Tax AJc

r.s31112 Bal c/d

31112 Bal c/d

RM

16,7503,25420.000

4.1604.160

2008111 Bal bld

20091/19al bldtq

20.000

3,250910

4.160

SUGGESTED SOLUTION

QuestionT (November 2AOg)

Determination of Tax Base

Liabilities Bank Accrued Provision FrovisionLoan interest for for

D/Debts *llarrantiesCarrying amount 40,000 2,OOO 2,000 4,000Less amt deductible for future taxation 0 2.000 2.000 :{!00TaxBase 40,000 0 0 _ q

Assets

Carrying amountLess Taxable future benefitsTax Base

CostLess CapitalAllowance

Tax Base

Account Prepaid trave!$ingreceivable expenses28,000 14,440

0028,000 14,404

Development PPEexpenditure24,AOO 600,00024.004 600,000

600KX25%X400

a) Determination of taxable or deductible temporary difference

Carrying Tax TTD ETDValue Base

Plant & Equipment 120,000 0 120,00CIDevelopment exp 24,OAO 0 24,OOA10% Bank Loan 40,000 40,000Accrued interest 2,CI00 C 2,0CCAccounts receivable- Gross 28,000 28.000(26,000+2,000)Provision for dfoubtful debts 2,000 0 2,*CI0Penalties payable 800 Nil .Provision for warranties 4,000 0 - :' '.lSTrade payable 14,000 14,000Bank 59,200 59,200Prepaid travelling expenses 14,40A 14,4OA

144,00fi : ''i0

b) Tax rate 26'/o -r*'ibDT liability 37,440DT Asset : S80

*Penalties payable not allowed for taxation - permanent differenee-:

c) Deferred Tax aJc

SUGGESTED SOLUTION

3,60032,240

35,840

Temporarydifference

RM

359,000

lS: Restatement(4o/ox12,AAO)Bal c/d

480

35,36035,840

Bal b/dIS

30o/o X PYTD (prior yr temp diff) = 3,600 PYTD = 12,000

Question I (October 2O1O, extract)

C. Deferred tax

(a) Tax base & temporary difference

PropertyTax base

Costlnitial allowance (1 5olo)

Annual allowance {17% x 3 yrs)

Carrying amount

WarrantyTax base

Carrying amountAmount deductible for futuretaxation

Carrying amount

(b) Deferred tax asseVliability

RM

650,000(e7,500)

(331,s00)221,OAO580,000

10,000

1C,0000

10,000 10,000

A taxable temporary difference will result in deferred tax liability and a deductibletemporary difference will result in deferred tax asset. Since the carrying amount of theproperty is greater that its tax base, the temporary difference is a taxable temporarydifference. Multiplying the difference with the tax rate will result in a deferred tax liability.

Wananty is a liability. Although its carrying amount is also greater than its tax base, thetemporary difference is a deductible temporary difference. Multiplying the difference withthe tax rate will result in a deferred tax asset.

Question 9 (FAR 500, Nov 2005)

a) Temporary differences

3,0002,4003,400

Bal c/d 3116104 18,000

00

6,800

SUGGESTED SOLUTION

18,000 32o/o 5,760

Accounting

RM

Tax base

RM

Temp diff

RM

Tax rate DeferedtaxRM

Equipment 1

CostLessAnnual depn

15,000

3,000

Cost

LessCap. allowance

lnitial (20olo)Annual Q}o/o\

15 000

3,0006.000

6,000

13,800

20,000

3gok

36%

340k

2,280

4,968

6,800

Bal c/d 31/6/01Equipment 2Cost

LessAnnual depn

Equipmeni 1

Equipment 2

12,044

12,OOO24,OOO

3,0002,400

Bal cld 3116101Equipment 2Cost

LessCap. allowance

Annual Eq 1

lnitial Eq 2Annual Eo 2

6,000

12,00018,000

6,0002,4044,800

Bal c/d 3116lA2Equipment 3CostLessAnnual depn

Equipment 1

Equipment 2Equipment 3

18,600

17,000

3,0002,4AO3.400

Bal c/d 3116102Equipment 3CostLessCap. allowanceAnnual Eq 1

Annual Eq 2lnitial Eq 2Annual Eq 2

4,800

17,000

04,8003,4006.800

Bal c/d 3116103Less

26,800 Bal c/d 3116103Less

6,800

Annuai depn j

Equipment 1

Equipment 2

Cap. allowanceAnnual Eq'1Annual Eq 2Annual Eo 2

SUGGESTED SOLUTION

Alternatively

Year ending

Carrying amountCost

Equipment 1

Equipment 2Equipment 3

Total costLess:Accum.Depreciation:

Equipment 1

Equipment 2Equipment 3

Carrying amount

Tax baseTotal cost "Less:

Equipment 1

Equipment 2Equipment 3

Tax baseTemporary Differencelncome tax rateDeferred Tax

30/06/2001RM

15,000

30t06t2002RM

15,00012,OOO

30/06/2003RM

15,00012,000

30to6t2004RM

15,00012,00017,00017.000

15,000

3,000

27,gOA

6,0002,400

44,000 44,000

Q,OAO7,2446,800

9,0004,8003.400

12,000 18,600 26,800 18,000

lnitial Capital AllowanceEquipment 1

Equipment 2Equipment 3

Accum. Annual Capital Allowance

15,000

3,000

6,000

27,440

3,0002,404

n,aao4,800

44,000

3,0002,4003,400

12,0009,6006,800

44,000

3,0002,4003,400

12,0009,600

13,6006,ooo 4,800 6,8006,000

38o/o

13,800364/o

20,00034%

18,00032%

2,28O 4,968 6,800 5,760

- Total cost should be the same as per calcuiation for carrying amouni.

SUGGESTED SOLUTION

b)

3A|UOI Bal c/d

117101 lnc Statemet -Restatement

3016/02 Bal c1d

117lO2lnc Statemet -

Restatement3016/03 Bal c/d

117lO3lnc Statemet -

Restatement3016/04lnc. Statement

Batc/d

Deferred Tax a/cRM

2,2802,284

3016/01 lnc. Statement

1l7lo1Bal b/d

3A161A2lnc. Statement

117lO2 Bal b/d

30/6103 lnc. Statement

1ft1A3 Bal b/d

2766,800

l:!!-?

400640

5,7606,800

RM2,280

3:?-222,280

2.808tr:::4,968

2.108

]=2',=?6,800

10