As of 31 December 20X3, Company A has a fixed asset with carrying value of 900 for accounting purposes. The tax base of this fixed asset is zero, as it has been fully deducted for the tax purposes in the previous periods.
Company A plans to fully realize this fixed asset through use in 20X4 and not through sales. In accordance with the local tax legislation, the applicable tax rate varies depending on the manner of recovery of related assets:
• The sale of assets is taxed at 40%
• Internal consumption is taxed at 30%
What is the amount of deferred tax liability relating to this asset as of 31 December 20X3?
A. Zero
B. 270
C. 900
D. 360
A. Zero
As of 31 December 20X3, the deferred tax liability relating to this asset should be zero, as the tax base of the fixed asset is zero due to its full deduction for tax purposes in previous periods. Since the asset will be realized through internal consumption, which is taxed at a 30% rate, and not through sale, there is no taxable event in the future that would create a taxable temporary difference. Therefore, no deferred tax liability needs to be recognized.
