The original cost of an asset is $$600,000.$ The asset has a $3-$year life and no salvage value is

expected. For tax purposes, the asset is depreciated using an accelerated depreciation method with

tax return depreciation of $$300,000$ in year $1,$ $$200,000$ in year $2,$ and $$100,000$ in year $3.$ The

firm adopts straight$-$line method of depreciation in its income statements. Earnings before

interest, taxes, depreciation, and amortization $($EBITDA$)$ is $$500,000$ each year. The firm$$s tax

rate is $40\%.$ Calculate the firm$$s income tax expense, and deferred tax liability for each year of

the asset$$s life.

$2$

What do you understand by the term $$Deferred Tax$$

Gerald Ltd$.$ revalued a property from a carrying value of $$4$ Million to its fair value of $$6\mathrm{.}2$

million during the reporting period. The property cost $$6\mathrm{.}5$ Million, and its tax base is $$3\mathrm{.}5$

Million. The tax rate is $30\%.$ Explain the deferred tax implications