Question 1
As of 31 December 20X1, Company A has equipment with accounting carrying value of 1,100. Tax base of this equipment is 1,700, and there is deductible temporary difference of 600.
Company A plans to realize this equipment through sale during 20X2 at it is no longer needed for manufacturing purposes. In accordance with the local tax legislation, the applicable tax rate varies depending on the manner of recovery of related assets.
Until the end of 20X1, the applicable tax rates were as follows:
• The sale of assets was taxed at 30%
• Internal consumption was taxed at 20%
On 1 February 20X2, the local tax authority enacted an increase of tax rates effective 1 February 20X2, as follows:
• 35% for sale of assets
• 25% for internal consumption
What is the deferred tax that should be recognized by Company A as of 31 December 20X1?
Deferred tax asset of 210
Deferred tax asset of 180
Deferred tax asset of 120
Deferred tax asset of 150
As of 31 December 20X1, Company A has a deductible temporary difference of 600, which represents the difference between the equipment's accounting carrying value of 1,100 and its tax base of 1,700. The recognition of a deferred tax asset would be based on the tax rate expected to apply when the difference is expected to reverse.
Until the end of 20X1, the applicable tax rate for the sale of assets was 30%. Therefore, as of 31 December 20X1, Company A should recognize a deferred tax asset using the tax rate that was in effect at that date.
The calculation of the deferred tax asset would be: Deductible temporary difference * Applicable tax rate as of 31 December 20X1 = 600 * 0.30 = 180
Thus, the correct answer is: Deferred tax asset of 180.
