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Zootopia Limited is a renowned zoo which attracts great attention due to its wide variety of animals. Company policy requires Zootopia Limited to replace all
Zootopia Limited is a renowned zoo which attracts great attention due to its wide variety of animals. Company policy requires Zootopia Limited to replace all of its barriers every five years. The barriers were last replaced on 1 July 2000. When preparing the financial statements for the year ending 30 June 2001, a suggestion is raised at a meeting of directors that the company should provide, each year for the next five years, 20% of the cost of replacement of the barriers It is estimated that the replacement cost for new barriers on 1 July 20X5 will amount to 1 000 000. The directors thus propose to recognise a provision of 200 000 in the financial statements for the current year. Required: Discuss whether the recognition of the provision in the financial statements for the year ended 30 June 20x1 is acceptable or not, with reference to International Financial Reporting Standards. (Part B: 9 marks) Part C The following deferred tax working papers of Blue Cheese Limited have been partially prepared at 28 February 20X2 Carrying amount Temporary Deferred Plant and equipment Balance-28/02/2001 640-000 600 000 Balance-28/02/20x2 Interest income receivable: Balance-28/02/20x1 Balance-28/02/20x2 20000 All of the plant and equipment was purchased on 1 March 2000 at a cost of 800 000 and there have been no purchases or sales of plant and equipment since that date. Plant and equipment is depreciated at 20% per annum on the diminishing balance method. The company tax accountant has confirmed the income tax treatment of the above items for the year ended 28 February 20x2 is as follows: Statement of financial position item Plant and equipment Income tax treatment 200 000 tax allowance Interest income receivable Taxable in year interest is camed The profit before tax is 1 000 000 and there are no other differences between accounting profit and taxable profit other than those evident from the information given. The income tax rate is 20% on taxable profits The HMRC account had a credit balance of 150 000 on 28 February 20X1, which was paid in full during the year ended 28 February 20x2 Required: a) Complete the deferred tax working paper. b) Show the ledger account for tax expense. (4 marks) (3 marks) c) Explain with reasons, whether the temporary difference at 28 February 20X2 is taxable or deductible and whether the resultant deferred tax is an asset or liability (3 marks) (Part C: 10 marks) (Total: 35 marks)
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