The  first  year’s  financial  statements  of  Titanium  Limited  (TL)  for  the  year  ended   

31 December 2022 are under preparation. The following matters have been identified which 

may have implications of deferred tax: 

(i)  

TL  acquired  an  equity  investment  for  Rs.  85  million  which  was  subsequently 

measured at fair value through profit or loss. On 31  December 2022,  TL  recorded   

Rs.  20  million  as  gain  for  change  in  the  fair  value.  Under  the  tax  laws,  gain  on 

investment is taxable at the time of sale. 

(ii)  

TL purchased factory building for Rs. 1,200 million in 2022 which was depreciated 

by  Rs.  80  million.  On  31  December  2022,  the  factory  building  was  revalued  at   

Rs. 1,260 million. Under the tax laws, depreciation at the rate of 10% per annum is 

allowed as a tax expense while revaluation does not affect taxable profit. 

(iii)  

Development cost of Rs. 20 million incurred in 2022 has been expensed out. Under 

the tax laws, development cost is amortized over ten years. 

(iv)  

TL received government grant of Rs 12 million related to an equipment. The grant is 

recognised as income over three years. Under the tax laws, the government grant is 

exempt from tax.  

(v) 

TL incurred a tax loss of Rs. 260 million for the year ended 31 December 2022. Under 

the  tax  laws,  all  unused  tax  losses  are  adjustable  from  future  profits  within  next   

six years.  

Applicable tax rate is 35%. 

 

Required: 

 

 

Discuss how the deferred tax related to each of the above matters should be dealt with in 

TL’s financial statements for the year ended 31 December 2022. 

(15) 

 

Answer rating: 100% (QA)

Answer Lets address each of the identified matters and how they impact Titanium Limiteds TL deferred tax in their financial statements for the year en... View the full answer