An asset which will be used for 3 years and then put out of use was purchased for $19,200 on January 1, 2008, and will be sold three years later for $8,100. The company uses straight line to calculate its depreciation. However, Inland Revenue's capital allowances are 25% reducing balance. The trading profit per the accounts after depreciation is $4,000 for each of the three years. Assume a corporation tax rate of 40%. 

a. Calculate the timing difference b. Calculate the taxable profits c. Calculate the deferred tax based on the timing differences d. Calculate the corporation tax based on taxable profits e. Prepare the deferred taxation account for the year ended December 31, 2008, 2009, 2010 f. Prepare the income statement extracts for the year ended December 31, 2008, 2009, 2010.

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Solution a Calculate the timing difference Year Accounting Depreciation Tax Depreciation Timing Diff... View the full answer