You are the management accountant of Construct Ltd, a private company which has as its main business activity the construction of houses for sale in the domistic sector. For its year ended 31 December 1998, the company charged depreciation of \(£ 700000\) and claimed capital allowances of \(£ 600000\). For the next five years, the capital allowances and depreciation for Construct Ltd are expected to be as follows:

At 1 January 1998, the net book value of fixed assets which qualified for capital allowances exceeded their tax written-down value by \(£ 1.4\) million. Construct Ltd follows the provisions of SSAP 15 - Accounting for Deferred Tax - and accordingly a provision for deferred tax of \(£ 225000\) was made in the 1997 financial statements. The rate of corporation tax which is appropriate for Construct Ltd is \(31 \%\).
Requirements

(a) Calculate the charge or credit to the profit and loss account for deferred tax for the year ended 31 December 1998 and the balance on the deferred tax account at 31 December 1998 (i) under the accounting policy followed by Construct Ltd;
(ii) under the full provision method.

(b) Explain why the Accounting Standards Board is currently reviewing SSAP 15 and may well produce a revised Financial Reporting Standard which requires the use of the full provision method.

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Capital allowances Depreciation Year ending 31 December 1999 000 000 500 700 31 December 2000 450 720 31 December 2001 600 740 31 December 2002 800 780 31 December 2003 950 820