Wrexham Ltd. purchased a machine for 50,000 on 1 January 2019. The machine has a useful...

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Wrexham Ltd. purchased a machine for £50,000 on 1 January 2019. The machine has a useful economic life of three years, with a scrap value of £5,000. The company's policy is to depreciate non-current assets on a straight-line basis. The company also expects to make profits of £42,000 every year from 2019 to 2022. The corporation tax rate for all years is 20%. The capital allowance on non-current assets for tax purposes for 2019 is £19,500, for 2020 is £13,500, and for 2021 is £12,000. The company has a 31 December year-end. Required: Calculate (ignore the time value of money): i) The deferred tax charge for all three years; ii) The provision for deferred tax that should be recorded in the Statement of Financial Position for each year. iii) Briefly compare the advantages and limitations of deferred tax. Wrexham Ltd. purchased a machine for £50,000 on 1 January 2019. The machine has a useful economic life of three years, with a scrap value of £5,000. The company's policy is to depreciate non-current assets on a straight-line basis. The company also expects to make profits of £42,000 every year from 2019 to 2022. The corporation tax rate for all years is 20%. The capital allowance on non-current assets for tax purposes for 2019 is £19,500, for 2020 is £13,500, and for 2021 is £12,000. The company has a 31 December year-end. Required: Calculate (ignore the time value of money): i) The deferred tax charge for all three years; ii) The provision for deferred tax that should be recorded in the Statement of Financial Position for each year. iii) Briefly compare the advantages and limitations of deferred tax.

Answer rating: 100% (QA)

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