Question 2a)

Timeless Magazines Bhd. received RM15,000 of subscriptions in advance for 2016. Subscription revenue will be recognized in the financial statement equally in 2017 and 2018. However, from the perspective of tax, the whole amount of RM15,000 will be recognized immediately upon its receipt in 2016. Timeless Magazine Bhd. reported pre-tax accounting income of RM80,000, RM115,000 and RM105,000 for 2016, 2017 and 2018, respectively. The income tax rate is 20%.

Required:

1. Calculate the amount to be recognized in the Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2016, 2017 and 2018.

2. Calculate the amount to be recognized in the Statement of Financial Position as at 31 December 2016, 2017 and 2018.

b) The following information is extracted from the financial statements of Tasty Road Bhd. at 31 December 2018.

Tasty Road Bhd.

Statement of Financial Position as at 31 December 2018

$ 000

Assets 2700

Cash 2700

Trade Receivable(Net) 400

Interest Receivable 1100

Inventory 2000

Plant 200

Research & Development 8000

Total. 16,800

Equity & Liabilities.

Trade Payable 2,900

Loan 4,650

Provision for Warranties 150

Deferred tax liability. 290

Share Capital 7,000

Retained Earnings 1,750

Total. 16,800

Additional information for relevant assets and liabilities:

1. Income tax rate for the year ended 31 December 2018 is 30%. It has been reduced from the previous years tax rate of 35%.

2. The company provides for doubtful debts, but tax rules allow only specific bad debts. The carrying amount of trade receivables of RM2.7 million after providing for provision for doubtful debts amounting RM 300,000.

3. Interest receivable refers to interest on investment. The company accrues interest on investment on a time basis, but interest investment is taxable only upon receipt.

4. Capital allowance given to plants for tax purposes is RM3.6 million. The carrying amount of the plant of RM2 million is after providing for accumulated depreciation amounting to RM3 million.

5. Research and development refers to the development costs that were capitalized. The tax law allows all research and development costs to be written off immediately in computing taxable profits.

6. Under tax rules, warranties are deductible expenses only when goods are returned or reimbursed. However, the company provides for warranties on goods sold only.

7. The balance in the deferred tax liability account is the carried forward closing balance from prior year.

Required:

Compute the amount of deferred tax that should appear in the account of Tasty Road Bhd. for the year ended 31 December 2018. Prepare a table showing the carrying amount, tax base and temporary differences for each of the items above.

MFRS 112 Deferred Tax.