ACC 2203 FAR 3 Class Exercise- Deferred Tax (Ref: FE Semester 2 2018-19) 1// Ahlan Wasahlan Berhad acquired a building on 1 January 2015 for RM22 million. The building's useful life is 5 years with an estimated residual value of RM2 million. The company is adopting the straight line method for the calculation of depreciation expenses. However, the tax authority does not allow the deduction of depreciation expenses in the calculation of taxable income. Instead, it allows the deduction of capital allowances. In the first year, the tax authority allows deduction of initial capital allowance of 25%. It also allows deduction of annual capital-allowances of 25%. Therefore, in the first year of purchase of asset which will be subjected to capital allowances, the company would be able to deduct 50% capital allowances (25% initial and 25% annual capital allowances). Accounting profit for the year ended 31 December 2015 is RM8 million. The balance of deferred tax liability as at 1 January 2015 is RM800,000. The current tax rate for 2015 is 30%. opening The following transactions took place during 2015: i. The company adopted the fair value model for its investment property, At 31 December 2015, the property's fair value is RM12 millions and recognized a gain of fair value changes for RM2 million. Gain on fair value change is taxable at 20%. Research and development costs of RM5 millions refers to the development costs ii. which have been capitalized until 31 December 2014. Such development costs started to be amortized from 1 January 2015 with estimated useful life of 5 years and residual value of zero. As at 31 December 2015, the net balance of trade receivables is RM800,000 after iii. providing for provision for doubtful debts of RM200,000 and a specific write-off of bad debts for an amount of RM50.000, Ahlan Wasahlan Berhad paid zakat obligation of RM250,000 directly to Majlis iv. Agama Islam Wilayah Persekutuan (MAIWP) on 15 December 2015. Ahlan Wasahlan Berhad has also made a specific contribution to Pertubuhan Anak V. Yatim Baitul Jannah situated at Jalan Sungai Pusu, Gombak for RM100,000. This amount of fund is to be used in order to repair damages and also to make some renovations to its building. However, this institution is not listed in the list of approved institutions by the tax authority. Unallowa ble expense. vi. Some parts of the investment property were rented out to tenants. Rent nceds to be menihs quarter. For example, the rent for January until March 2016 needs to be paid in paid quarterly, payable in advance The amount of quarterly rental is RM250,000 per very 3 December 2015. As at 31 December 2015, the company has recorded unearned rental revenue of RM250,000 for the payment received for rental period of January - March 2016. vii. Other payables include accrued utilities expenses, and fines and penalties. The total amount of accrued utilities expenses and fines and penalties as at 31 December 2015 were RM20,000 and RM10,000, respectively. viii. In order to raise the capital, the company has also raised a short-term borrowing for RM300,000 on 1 Jly 2015. The lump sum payment of the principal and interest will be paid in full on 30 June 2016. Assume an interest rate of 10% p.a. for the 171s015 calculation of interest payable on 31 December 2015. Required: Prepare a table showing the carrying amount, tax base and temporary differences for each of the items above for the year ended 31 December 2015 which give rise to deferred tax. a. (10 marks) b. Compute the amount of deferred tax asset and liability that should be recognized by the company for the year ended 31 December 2015, and the amount charged into the income statement. (5 marks) c. Tax losses arise when tax-deductible expenses exceed taxable incomes. In certain jurisdiction, tax losses are allowed to be utilized against profitable future years. Briefly explain this method with your own example (4 marks) d. Discuss the differences between permanent differences and temporary differences, with examples. (6 marks) (Sub-total: 25 marks]