Jones plc has made a profit before tax of 64.4 million.

The tax rate in the tax jurisdiction where Jones plc operates is 20%. Following tax rules are relevant: All income credited and expenses charged in the income statement are allowable for tax purposes except for the following:

• A tax deduction for a trade receivable allowance is given if the company can demonstrate that the allowance relates to a specific receivable balance and only if the amounts are deemed irrecoverable. Other trade receivable allowances are disallowed for tax purposes.
• Entertaining costs are disallowed for tax purposes.
• Depreciation for accounting purposes is disallowed and replaced by tax depreciation
• Intangible asset costs are treated as tax deductible in the year when they are paid for and not when they are amortised in the statement of profit or loss.

The following notes are relevant for the above statement of profit or loss for Jones plc.

Notes

1. Trade receivable allowances

Profit for the year ended 31 March 2020 includes 19.5 million for a general allowance against receivables.

A further allowance has been included for a customer with a year-end balance of 10 million which has gone into liquidation. Jones plc has made a specific allowance for this amount in the year ended 31 March 2020 but anticipates that it will recover 2.5 million from the liquidation.

2. Property plant and equipment

At 31 March 2020, the carrying amount of property, plant and equipment was 96 million, compared with its tax base of 54 million. Depreciation charged for the year to 31 March 2020 is 24 million and tax depreciation is 33 million.

3. Entertaining costs of 4 million are included in the profit for the year.

4. Deferred tax liability brought forward

At 31 March 2019, there was a deferred tax liability of 6.8 million in the statement of financial position and no adjustments have yet been made to this figure in the draft financial statements at 31 March 2020.

The deferred tax liability at 31 March 2019 related to the following:

• A temporary timing difference between the carrying amount of property, plant and equipment and its tax base. The carrying amount of property, plant and equipment on 31 March 2019 was 60 million, compared with its tax base of 38 million; and
• A temporary timing difference arising on the purchase of a brand. On 20 March 2019 Jones plc paid 12 million for a brand. This cost was capitalised in the year ended 31 March 2019 and included as an intangible asset on the statement of financial position. No amortisation was charged in the statement of profit or loss for 31 March 2019. The brand is to be amortised over 4 years commencing on 1 April 2020. This is the correct accounting treatment under IFRS.

REQUIRED:

1. Set out and explain the type of timing differences which arise in respect of notes 1 3.
2. Explain the elements of the brought forward balance on the deferred tax liability account of 6.8 million.
3. Calculate the current and deferred tax charge in the statement of profit or loss and the current and deferred tax liability in the statement of financial position for Jones plc for the year ended 31 March 2020.
4. Prepare a reconciliation between the accounting profit for the year ended 31 March 2020 and the tax expense.