Page 409 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Answers

Example 9.4

Carrying amount 130k
Tax base (80k)

––––––
Total temporary difference 50k
––––––

Tax rate 28%

Deferred tax liability 14k

CV > TB therefore deferred tax liability is created.

The deferred tax from the PPE is caused by a temporary difference of £50k.
This temporary difference is created as a result of 2 separate factors.

 Accelerated capital allowances have caused temporary differences of
£20k (100k – 80k)

 Revaluation of the PPE has caused temporary differences of £30k (130k –
100k).

Deferred tax impacts should match the accounting treatment of the transaction
causing the tax. As a result:

 the portion of deferred tax created by accelerated capital allowances
should be taken to p/l,

 the proportion created by the revaluation should be taken to revaluation
reserve.

The following journal is posted:

Dr P/l 5.6k (20k × 28%)

Dr Revaluation reserve 8.4k (30k × 28%)

Cr Deferred tax Liability 14k

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