The accountant of Hanson Products Ltd has asked you how your answer to Question 8 above would be affected using the following two methods of calculating deferred taxation.
Required:
(a) For each of the years from 20X1 to 20X5, calculate the deferred tax balance if:
(i) Full provision is made for deferred tax in accordance with IAS 12 Income Taxes,
(ii) The company decided to calculate the deferred tax balance using a discount rate of 5%.
(b) Discuss the advantages and disadvantages of discounting deferred tax balances. Use the following table of discount factors:
Year Discount factor
1.....................................0.9524
2.....................................0.9070
3.....................................0.8638
4.....................................0.8227
5.....................................0.7835