QUESTION ONE

Shalom Ltd prepares financial statements to 31 March each year. On 1stApril 2013, Shalom Ltd purchased equipment for K 4,800,000 with a useful economic life of 5 years. Shalom Ltd depreciates equipment on a straight line basis.

The company does not have any other Non-Current Assets other than the equipment purchased on 1 April 2013.

The tax allowances relating to this asset are granted by the Zambia Revenue Authority at an annual rate of 25% using straight line method.

Income tax rate applicable to Shalom Ltd is 30% per annum.

Required:

1. Explain why permanent difference between accounting profits and taxable profits do not have deferred tax consequences.
2. Compute and journalize deferred tax for the period

12 Marks