Applying tax‐effect accounting  LO1, 2, 3, 5 Orca Ltd applies the principles of tax‐effect accounting as per AASB 112/IAS 12 in accounting for company income tax. Orca Ltd calculates depreciation expense on its plant using the straight‐ line method, but applies an accelerated method for tax purposes. Tax depreciation in the current year is then larger than the related accounting expense. Orca Ltd has also recognised rent received in advance from buildings that it owns. These revenues are included in the current year’s taxable profit but shown in the financial statements as a liability. Required 1. Explain the principles underlying tax‐effect accounting. 2. Determine how Orca Ltd should account for the above differences for accounting and tax. 3. Analyse under what circumstances Orca Ltd should raise deferred tax accounts and how they should be classified in the statement of financial position.