A company has a group of fixed assets that are summarized in its accounting records as shown in Table 12.7.

For tax purposes the asset balance brought forward on 1 January of year 1 is A7,000.
Tax depreciation is available at the rate of 20 per cent per annum on the reducing balance basis. The tax rate is 30 per cent in years 1 and 2 but falls to 20 per cent in years 3 and 4.
Prepare a tabular summary of the tax balances relating to this group of assets over the four years of the example, calculate deferred tax balances for each of the four years, and show the effect of deferred tax on the income statement for years 2, 3 and 4.

Transcribed Image Text:

Table 12.7 Summarized fixed assets (a) Accounting balances Asset balance 1 January Additions Depreciation Balance 31 December Year 1 2 W 34 3 4 10,000 13,500 17,550 22,095 5,000 6,000 7,000 1,500 1,950 2,455 2,210 13,500 17,550 22,095 19,885