Question 2

Assume that for a particular company, the only temporary difference for tax-effect accounting purposes relates to the depreciation of a newly acquired machine. The machine was acquired on 1 July 2018 for $650,000. Its useful life is considered to be four years, after which time it is expected to have no residual value. For tax purposes, it can be fully written off over two years. The tax rate is assumed to be 35 per cent.

Required:

a) Determine whether the machine's depreciation will lead to a deferred tax asset or a deferred tax liability.

b) What would be the balance of the deferred tax asset or deferred tax liability as of 30 June 2021?