QUESTION 1

Lynida is a new accountant for Niendra Engineering Bhd. She is concerned about the companys income statement that reports income tax expense which is different from the income tax obligation to the government for the year 2020.

She is also uncertain which differences should be included in the determination of deferred tax for 2020. Lynida is provided with two items that are relevant to the decision. The first item is RM70,000 non-tax deductible insurance premium the company pay annually for the CEOs life insurance policy for which the company is the beneficiary. The second item is that Niendra Engineering Bhd purchased a building on 1 January 2020 for RM12,000,000. The buildings estimated useful life is 10 years from the date of purchase with no salvage value. Depreciation computed using the straight-line method for financial reporting purposes and the capital allowance for the building is 30% in the first year including both initial allowance and annual allowance. Assume tax rate is 24%.

Question:

Explain why the amount of income tax expense in Niendra Engineering Bhds income statement is not equal with the amount of income tax obligation to the government.Discuss the difference between temporary and permanent difference. Give ONE (1) example for temporary and permanent differences based on the information in Niendra Engineering Bhd. Calculate the deferred tax as at 31 December 2020 for Niendra Engineering Bhd and specify whether it is deferred tax assets or deferred tax liability.Assume that on 31 October 2020, the Malaysian Government enacted that corporate tax rate is reduced to 21% for year assessment of 2021 onwards. Discuss how this affects net deferred tax. Calculate the adjusted net deferred tax.