Question

You are provided the information for the following asset/liability for the year ended 30 June 2019 for Decker Ltd. Assume the tax rate is 28 percent.

Government Bonds

On the balance sheet, there is an investment of $300,000 in Government bonds, which pays interest at 5% per annum. For tax purposes, the interest income from these Government bonds is never taxable.

Rent revenue received in advance

The opening balance of the rent revenue received in advance was $50,000. During the year, Decker Ltd has received $100,000 cash with respect to rent revenue during the year. In the Income Statement, an amount of $120,000 was recognised as rent revenue this year. For tax purposes, the Inland Revenue taxes all rent received on a cash basis.

Required:

(a) In accordance with NZ IAS 12, calculate the temporary difference arising from each of the above asset/liability. Show all workings

(b) Explain whether there is a deferred tax asset or deferred tax liability arising from each of the above asset/liability. Alsocalculate the amount of deferred tax asset/liability.

Answer 1

Question (a):

There will be a Deductible Temporary Difference on the Interest on Government bonds as there is No Tax base & Carrying amount of the income will be 300000*5% = $ 15,000. So, the Deductible Temporary Difference = 15000-0

= $15000

There will be a Taxable Temporary Difference on the rent received as the Tax base is $ 100000 & Carrying amount is 120000, the Taxable Temporary Difference is 120000-100000 = $ 20,000

Question (b):

From Deductible temporary difference there will be a Deferred Tax Asset & from Taxable Temporary Difference there will be a Deferred Tax Liability.

DTA = 15000*28% = $ 4200

DTL = 20000*28% = $ 5600