QUESTION 2

Rowen recognised a deferred tax liability for the year ended 31 December x4 which
related solely to a difference between rates of capital allowance and depreciation. T
carrying amount of plant and equipment was RM30 million and tax written down val
was RM20 million. Tax rate is 30%.

The following transactions took place during x5:

a) During the year plant was revalued and surplus was RM5 million. At the end
the year, the carrying amount of plant RM42 million and tax written down w
RM25 million. Gains on revaluation are taxable on sale at 20%.

b) Development expenditure of RM12 million was capitalised in accordance wi

MFRS138 but is deducted for tax purpose. There was no amortisation durin
the year.
c) Rowen has recognised income receivable of RM2 million but none has be
received yet.
d) Rowen has made provision for environment clean-up of RM1 million. T
expenditure will be tax deductible when incurred only.

e) The trade receivables were disclosed at RM3.5 million after providing f

doubtful debts of RM250,000.

Financial instruments were classified as held-for-trading at fair value of RM

million. The cost of these financial instruments was RM7 million.
f)
The tax payable for the year was calculated at RM3.3 million.
g)
Required:
a) Prepare a table showing the carrying amounts, tax base and tempora
b) differences foramount
Calculate the each ofofthe
taxitems above
expense as as at 31 December
charged x5. statement and t
in the income
balance in the deferred tax liability in the statement of financial position as

Steps

Step 1: Compare the carrying amount of asset and liabilities with the
Step 2: Identify the temporary difference (TTD or DTD)
Step 3: Multiply the total taxable and deductible temporary difference
Step 4: Calculate the net between DTL and DTA.
Step 5: Deduct the b/f DTL or DTA.
Step 6: Do adjustment to opening balance (if any)[changes in tax rate
 ANSWER

ed 31 December x4 which is
wance and depreciation. The
n and tax written down value
Formula: Assets

CA > TB

CA < TB
s RM5 million. At the end of
on and tax written down was
sale at 20%.
Liabilities
apitalised in accordance with
was no amortisation during
CA < TB
2 million but none has been
CA > TB
an-up of RM1 million. The
nly.

million after providing for

As at x5, Opening Deferred Tax Liability =

trading at fair value of RM8

s RM7 million.

3.3 million.
 Plant
s, tax base and temporary Development Expenditure
cember x5. statement and the
the income Income receivable
ent of financial position as at
Provision for Environment Clean Up
Trade receivables
Financial instrument held for trading

t and liabilities with the tax base.

D or DTD)
ble temporary difference with the tax rate

any)[changes in tax rate/ revaluation]

 TTD DTD

d Tax Liability = (RM30 million - RM 20 million )*0.3

3 million
 Nature (for liability method)

Asset
xpenditure Asset
vable Asset
ment Clean Up Liability
ables Asset
held for trading Asset

Deferred tax liability

Deferred tax asset
Deferred tax liability
Brought forward

Revaluation surplus (5 x 30%)

Charged in statement of profit or loss
Statement of profit or loss and other comprehensive income at 31

Less: Tax expense

M 20 million )*0.3
 Carrying amount (RM'M

42
12
2
1
3.50
8

x 30%)
profit or loss
loss and other comprehensive income at 31 December x5

Tax payable ( Dr tax expense, cr tax payable

Deferred tax expense relating to the origination and reversal of temporary d

Extract of amended financial statement of XYZ as at 31 December x2

Revaluation reserve (5-1.5)

Deferred tax liability (3+1.5+4.725)

bal c/f
 Taxable
temporary
difference
Tax base (RM'm) (RM'000)
CAA>TB = TTD
CAL<TB = TTD

25 17
- 12
- 2
-
3.75
7 1

32
Tax at 30% 9.6

9.6
-0.375
9.225
(3)
6.225

-1.5 Dr Revaluation reserve, Cr DTL

4.725 Dr Tax expense, Cr DTL
d reversal of temporary differences (Dr tax expense, Cr DTL )

as at 31 December x2

Deferred tax liability

9.225 Bal b/d
 surplus on revaluati
tax expense
9.225
 Deductible
temporary
difference
(RM'000)
CAA<TB = DTD
CAL>TB = DTD

1
0.25

1.25
0.375

ion reserve, Cr DTL

nse, Cr DTL
 RM'm RM'm

3.3
, Cr DTL ) 4.725

-8.025
-8.025

RM'm
4
9.225

liability
3
 1.5
4.725
9.225
QUESTION 3
31 December x4, you were asked to calculate the amount deferred tax charged in the
statement of profit or loss and other comprehensive income.

Statement of financial statement RM

Assets
a. Property at cost 1,500,000
Accumulated depreciation (500,000)

b. Plant 800,000
Depreciation (200,000)

c. Research and development 500,000

Accumulated amortisation (300,000)

d. Provisional for warranties

Additional information:
a. Property does not enjoy any tax relief or capital allowances.
b. Tax depreciated value plant was RM100,000.
c. Tax rule allows full deduction for research and development when incurred.
d. Tax rules allow cash spent on actual repairs and refunds on warranties given.
e. Tax rate is 30%
Required:
Calculate the amount of deferred tax charged in the statement of profit or loss and oth
 ANSWER
deferred tax charged in the
e.

RM

Property
Plant
1,000,000 Research and Development
Provision for warranties

600,000

200,000

35,000

wances.

opment when incurred.

unds on warranties given.
ment of profit or loss and other comprehensive income.
 Taxable
temporary
difference (RM)
CAA>TB = TTD
Nature (for Carrying CAL<TB = TTD
liability method) amount (RM) Tax base (RM)
Assets 1,000,000 1,000,000
Assets 600,000 100,000 500,000
Assets 200,000 - 200000
liabilities 35,000 -
Total TTD/DTD 700,000
Tax@30% 210000

Deferred tax liability 210000

Deferred tax asset -10500 Add to DTL ledger
Deferred tax liability 199500
Brought forward (45,000)
154500

Charged in statement of profit or

loss and OCI 154500 Dr Tax expense, Cr Dtl
 Deductible temporary
difference (RM)
CAA<TB = DTD
CAL>TB = DTD

35000
35,000
10,500.0

ense, Cr Dtl
Question 6

Richard Bhd acquired 100% of Beez on 31 December x3. It paid RM659,000 to acquire
the shares. The following statement of net assets on 1 December x3 relates to Beez.

FairCarrying
value amount
Tax base
RM'000RM'000RM'000
Building 500 300 200
Plant and equipment 40 30 15
Inventory 114 104 104
Trade receivables 110 100 110
Retirement benefits (liability) (50) (50) -
Current liabilities (100) (100) (100)
614 tax 384
Beez had not provided for deferred 329
and is required to provide for it on 31
December x3. Retirement benefits are allowed for tax when it is paid.

Current tax rate is 30%.

Required:
a. Calculate the deferred tax tha shoud appear in the accounts of Beez.
b. Compute the goodwill on consolidation.
 ANSWER

M659,000 to acquire
x3 relates to Beez.
Building
P&E
Inventory
Trade Receivables
Retirement benefits(Liab.)

e for it on 31
paid.
 Nature (for liability method) Carrying amount (RM000)
Assets 300
Assets 30
Assets 104
Assets 100
Liability 50.00

Deferred tax liability

Deferred tax asset
Deferred tax liability
Brought forward 1/1 x3
Deferred tax liability 31/12 x3
 Deductible temporary
difference (RM000)
Taxable temporary CAA<TB = DTD
difference (RM000) CAL>TB = DTD
CAA>TB = TTD
CAL<TB = TTD
Tax base (RM000)
200 100
15 15
104 0.00
110 10
0 50
115 60.0
TAX @ 30% 34.5 18.0

34.5
-18.0
16.5
-
16.5