The pre-tax profits of Radfern Ltd for the last three years (as reported in its financial statements)
Question:
The pre-tax profits of Radfern Ltd for the last three years (as reported in its financial statements) have been as follows:
£
Year to 31 August 2016............... 125,000
Year to 31 August 2017............... 130,000
Year to 31 August 2018............... 135,000
In the year to 31 August 2016, there was a taxable temporary difference of £50,000 between accounting profits and taxable profits. £10,000 of this difference was reversed in the year to 31 August 2017 and the remaining £40,000 was reversed in the year to 31 August 2018.
(a) Assuming a tax rate of 20% throughout, demonstrate that if the company did not account for deferred tax, its profits after tax would appear to be on a downward trend, even though pre-tax profits are rising and tax rates have remained unchanged.
(b) Show the transfers that should be made to or from the deferred tax account in each year.
Step by Step Answer:
International Financial Reporting A Practical Guide
ISBN: 978-1292200743
6th edition
Authors: Alan Melville