QUESTION 3 PART A For the year ended 31 July 2017 Alternative Energy Ltd (AEL) made taxable trading profits of $3,200,000 on which income tax is payable at 25%. 1. A transfer of $90,000 will be made to the deferred taxation account. The balance on this account was $200,000 before making any adjustments for items listed in this paragraph. 2. The estimated tax on profits for the year ended 31 July 2016 was $180,000, but tax for that year has now been agreed at $140,000. 3. Tax on profits for the year to 31 July 2017 is payable on 1 May 2018. 4. In the year to 31 July 2017 the company made a capital gain of $220,000 on the sale of property. This gain is taxable at a rate of 25%. Required: (a) Calculate the tax charge for the year to 31 July 2017. (8 marks) (b) Calculate the tax liabilities in the statement of financial position of AEL as at 31 July 2017 (8 marks) 3 Redwood Limited depreciates its machines at 10% per annum on cost. The local tax authority however allows an annual depreciation charge of 12.5%. The machines cost $2,000,000. The relevant tax rate is 35%. Determine the deferred tax liability for the first two years of operation based on the information presented. (5 marks) PARTC 1. Explain the difference between current taxation and deferred taxation (5 marks) 2. From the list of liabilities below state their tax base and temporary timing difference: (a) Current liabilities include accrued expenses with a carrying amount of $14,000. The related expense will be deducted for tax purposes on a cash basis. (b) Current liabilities include interest revenue received in advance, with a carrying amount of $30,000. The related interest revenue was taxed on a cash basis. (c) Current liabilities include accrued expenses with a carrying amount of $78,000. The related expense has already been deducted for tax purposes. (d) Current liabilities include accrued fines and penalties with a carrying amount of $2,100. Fines and penalties are not deductible for tax purposes. (4 marks)