On 1 January 2016, Ihsan Berhad acquired a plant for RM30 million. The plant had an estimated life of five years and an estimated residual value of RM5 million. The plant is depreciated on a straight-line basis. Tax law does not allow depreciation as an expense, but a tax allowance of 60% of the cost of the asset can be claimed in the year of purchase and 20% per annum on a reducing balance basis in the following years. Profit before tax for the year ended 31 December 2016 is RM10 million. The balance of deferred tax liability as at 1 January 2016 is RM900,000. The current tax rate is 25%.

The following transactions took place during 2016:

1. During the year, plant was revalued and surplus was RM5 million. Gains on revaluation are taxable at 20%.
2. Ihsan Berhad has recognised rental receivable of RM2 million but none has been received yet.
3. Research and development expenditure of RM3 million refers to the development costs that was capitalised and being amortised for RM1.6 million. The tax rule allows all research and development costs to be written off immediately in computing taxable profits.
4. The trade receivables were disclosed at RM3.5 million after providing the provisions of RM250,000 and bad debts of RM500,000 but tax rule allows only specific bad debts.
5. Ihsan Berhad raised a loan of RM20 million on 1 October 2016 at 10% interest rate. The principal and interest is repayable on 30 September 2017. Interest paid is allowed for tax purpose.
6. Ihsan Berhad provides 2% for warranties on goods sold of RM40 million but the tax rule allows when reimbursements are made.
7. Interest receivable on investment is RM2.5 million. The tax rule allows the interest received to be taxable.
8. The tax payable for the year was calculated at RM3.3 million.

Required:

1. Prepare a table showing the carrying amount, tax base and temporary differences for each of the items above for the year ended 31 December 2016 which give rise to deferred tax. (10 marks)

2. Compute the amount of deferred tax asset and liability that should be recognised by the company for the year ended 31 December 2016. (3 marks)

3. Show the amount of deferred tax to be charged in the Statement of Profit or Loss and Statement of Financial Position for the year ended/as at 31 December 2016.

6. marks)

Discuss THREE (3) reasons for the deferred tax to arise.