Part a JKL Ltd bought an item of equipment at $4 million on 1 January 2017, it had estimated life of 8 years and residual value at $800,000. The equipment was depreciated on straight line basis. However, the Inland Revenue Department does not allow depreciation as deductible expenses. Instead, tax expenses of this type of asset can be claimed against income tax in the year of purchase and 20% per annum (on reducing balance basis) of tax base thereafter. The rate of income tax was taken as 25 %.

Required In respect of above items of equipment, calculate the deferred tax charge (i.e. tax expenses) or tax credit (i.e. tax benefit) in JKL Ltds books for the year ended 31 December 2019 through the journal entry. (11 marks) Note: Extract of income statement is not required

Part b Why did companies provide for deferred tax items in its financial statement? (4 marks)