Question 2

(a)IAS 12 Income Taxes details the requirements relating to the accounting treatment of deferred taxes.

Required

Explain why it is considered necessary to providefor deferred tax and brieflyoutline the principles of accounting for deferredtax contained in IAS 12 Income taxes. (10 marks)

(b)Tsano purchased an item of plant for $2,000,000 on 1 October 2020. It had an estimated life of eight years and an estimated residual value of $400,000. The plant is depreciated on a straight-line basis. The tax authorities do not allow depreciation as a deductible expense. Instead a tax expenseof 40% of the cost of this type of asset can be claimedagainst income tax in the year of purchase and 20% per annum (on a reducing balance basis)of its tax base thereafter. The rate of income tax can be taken as 25%.

Required

In respect of theabove itemof plant,calculate the deferred tax charge/creditin Tsano'sstatement of profit or loss for the year to 30 September 2023 and the deferred tax balance in the statement of financial position at that date. (15 marks)

Note. Work to the nearest $'000.