QUESTION 5 (INCOME TAXES)

Anita Larry Ltd is an agro-processing company which reports under International Financial Reporting Standards (IFRSs) and prepares its financial statements up to 31 December each year. The company intends to comply fully with IAS 12 Income Taxes by introducing deferred tax in its financial statements. On 1 January 2020, the company acquired an item of plant which cost GH900,000 and has a useful life of 5 years with no residual value.

Anita Larry Ltd enjoys capital allowance at the rate of 30%. Revenue generated by using the plant is taxable, any gain on disposal of the machine will be taxable and any loss on disposal will be deductible for tax purposes. Anita Larry Ltd estimates current tax provision for the year to 31 December 2020 at GH11,245. The tax rate of Anita Larry Ltd is 25%.

You are required to:

In accordance with IAS 12: Income Taxes, explain the amounts to be reported in the Statement of Financial Position and Statement of Profit or Loss for the year ended 31 December 2020.

Explain the term temporary difference and state THREE (3) circumstance in which temporary difference may arise.