The pretax profit of entity B for the last three years have been as follows: 

In the year ended 31 August 2007, there was a temporary difference of EUR 100,000 between accounting profit and taxable profit. EUR 20,000 of this difference reversed in the year ended 31 August 2008 and the remaining EUR 80,000 reversed in the year ended 31 August 2009. 

(a) Assuming a tax rate of 20 per cent throughout, demonstrate that if the entity did not account for deferred tax, its profit after tax would appear to be on a downward trend, even though pretax profits are rising and tax rates have remained unchanged. 

(b) Show the transfers that should be made to or from the deferred tax account each year.

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Year ended 31 August 2007 Year ended 31 August 2008 Year ended 31 August 2009 250,000 260,000 270,000