Intermediate accounting - Deferred tax

carryforward is used sollallax payable in on her suggestion. Case Study 2 Shoes and Suede You are the financial controller of Semphonia Shoes (SS), a producer of athletic footwear, apparel and equipment that is publicly listed in Bursa Malaysia. The company manufactures a wide range of selection of products, all of which cater for the demand of its customers from various age groups. On 5 January 2018, the following consolidated financial statements of Semphonia Shoes are drafted and submitted for your review. Semphonia Shoes Consolidated Statement of Financial Position as at 31 December 2018 ('000) ('000) Assets Non-current assets Goodwill 486 Patent 2,000 Land 6,500 Equipment 2,550 11,536 Current assets Inventory 900 Cash 800 1.700 Total assets 13.236 Liabilities and equity Share capital 5,000 Retained earnings 4,165 9,165 Non-controlling interests 1,093 Total equity 10,258 Non-current liabilities Provisions 1,010 Deferred tax liabilities 568 1.578 Chapter 8 Deferred Tax 289 Current liabilities Payables Provisions (short-term) 780 620 Total liabilities 1.400 Total liabilities and equity 2,978 13.236 This is the first time the consolidated financial statements have been prepared since the company has only acquired a subsidiary on 1 January 2018. The acquisition of 75% of the issued share capital of Suede Manufacturing (SM) in Sabah is made for cost effectiveness. Transportation costs associated with transporting the company's products, from Selangor to Sabah, have skyrocketed in the past few months and the management forecasts that locating production closer to the customers can reduce these costs. The acquisition price is RM3,795,000 for nett identifiable assets with the fair value of RM4,372,000. The tax base of the nett assets acquired is RM2.1 million. Goodwill of RM516,000 is reported from the acquisition. While most of the drafted consolidated accounts seem to be in place, you have come across transactions with SM that probably would affect the consolidated accounts, especially the deferred tax liability component. More specifically, you are concerned with the following (a) During the current year, SM has sold goods of RM10,000 to SS. SM has made a profit of 20% on the selling price in the transaction. SS has RM5,000 worth of these goods recorded in its statement of financial position at the current year-end. (b) During the year, the management of SM has declared a dividend of RM100,000, which is payable after the year-end. A liability has not been recognized in the financial statements of SM as at the year-end. Also, it has become known to you that while SS is subject to 25% corporate income tax rate, SM is a pioneer status company that is enjoying its 5 years of tax exemption. Required: You need to write a memorandum to your staff to elaborate on the deferred tax implications that they need to consider in the preparation of the consolidated financial statements. More specifically: (a) Elaborate on deferred tax implications on unrealized intra-group profits eliminated on consolidation (b) The differences between goodwill on acquisition date and in the drafted accounts indicate that goodwill is being amortized. You have identified that no impairment has occurred that involves goodwill during the year. Advice on whether the amortization of goodwill has any deferred tax implications. (c) There seems to be discrepancies in the calculation of deferred tax arising from the consolidation since SS and SM are subject to different tax rates. Advice on the applicable tax rates in determining deferred tax from consolidation. (d) Suggest disclosures to be included in the company's consolidated financial statements for the year ended 31 December 2018