UK Ltd is the wholly-owned subsidiary of a US parent, US Inc. US Inc has a number of subsidiaries located in the US and in Europe. All group companies prepare financial statements to 31 December.

For the year ended 31 December 1996 the accounting profit before taxation of UK Ltd was \(£ 5\) million. Depreciation charged for the year was \(£ 1.2\) million on plant and machinery and \(£ 400000\) on retail premises. UK Ltd claimed capital allowances for the year of \(£ 1.5\) million on the plant and machinery but no capital allowances were available on the retail premises. Apart from capital allowances and depreciation, there were no differences between accounting profit and taxable profit for the year.

UK Ltd accounts for deferred taxation using the partial provision method laid down in SSAP 15. The provision which was included in the balance sheet under this method at 31 December 1995 was \(£ 160000\). UK Ltd has produced the following estimates of capital allowances and depreciation for the next five years:

In the longer term, the level of capital expenditure is such that capital allowances on plant and machinery are likely to be equal to, or exceed, depreciation on plant and machinery.
The provision for mainstream corporation tax, which was included as a creditor in the balance sheet of UK Ltd at 31 December 1995, was \(£ 900000\). On 1 October 1996 the company paid the mainstream corporation tax for 1995 , which was finally agreed at \(£ 920000\). The rate of corporation tax on profits which is appropriate for UK Ltd for 1995 AND 1996 is \(33 \%\).

\section*{Requirements}

(a) Calculate the taxation charge that will be included in the profit and loss account of UK Ltd for the year ended 31 December 1996.

(b) Calculate the taxation charge that would be included in the profit and loss account of UK Ltd for the year ended 31 December 1996 if deferred taxation had been provided under the full provision method.

(c) Explain why SSAP 15 prefers the partial provision method to the full provision method.

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Year ending 31 December Estimated capital allowances on plant Estimated depreciation on premises 000 000 000 1997 1600 1250 400 1998 1200 1300 400 1999 1000 1350 400 2000 800 1400 400 2001 1500 1400 400