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F2: Advanced Financial Reporting

9.2 B

Entertaining expenses create permanent differences between the accounting
and tax treatments. Entertaining expenses will be included within the profit or
loss account as incurred. They are not deductible for tax purposes.

Deferred tax is created by temporary differences not permanent differences.

9.3 A

Workings are shown to the nearest $000
Year ended 20X7
CV TB
Cost 500 Cost 500
Depreciation (50) Capital allowances (25%) (125)
––––– –––––
450 375
––––– –––––

Temporary Differences (450-375) 75

CV> TB = Deferred tax liability
@ tax rate × 24%
–––––
DT Liability at y/e 31st Aug 20X7 18
–––––
Year ended 20X8
CV TB
CV 450 TB 375
Depreciation (50) Capital allowances (25%) (94)
–––– ––––
400 281
–––– ––––

Temporary Differences (400 – 281) 119

CV> TB = Deferred tax liability
@ tax rate × 24%
–––––
DT Liability at y/e 31st Aug 20X8 29
–––––
Increase in deferred tax liability (29 – 18) 11

Double entry required to record movement in deferred tax Dr P/L 11 Cr DT
liability 11

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