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Deferred Tax Questions

The document provides information and requirements for two questions regarding deferred taxation. Question 1 asks to discuss the two principal methods for computing deferred tax and calculate deferred tax under the liability method for an example. Question 2 provides information about a company and requires preparing a deferred taxation account showing the calculations.

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Cristian Renatus
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63 views3 pages

Deferred Tax Questions

The document provides information and requirements for two questions regarding deferred taxation. Question 1 asks to discuss the two principal methods for computing deferred tax and calculate deferred tax under the liability method for an example. Question 2 provides information about a company and requires preparing a deferred taxation account showing the calculations.

Uploaded by

Cristian Renatus
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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QUESTION 1: (CPA May 1998)

The NBAA’s Tanzania Statement of Accounting guideline (TSAG) No.9 deals with
accounting for deferred tax.

REQUIRED:

(i) Discuss the merits the two principal methods used to compute deferred tax
(6 marks)

(ii) Chamber Ltd. acquired a motor vehicle on 1st 1994 at a cost of


shs,.10,000,000/=. The company policy is to depreciate motor vehicles on
straight line method over 5 years. the motor vehicle rank for tax allowance of 25
percent per annum on cost. Assume tax rates were as follows:- 1992; 40%;
1993; 50%; 1994; 50%; 1995; 45% and 1996; 35%. Calculate the relevant
deferred tax under the liability method for the years 1992, 1993,1994, 1995 and
1996. Assume this the only item giving rise to timing differences.
(14 marks)
(Total: 20 marks)

OUESTION 2 (CPA May 2000)

The following information relates to Urafiki Ltd. for the year ended December 31, 1999.

(i) Fixed assets balances as at January 31, 1999 were:-


 Machinery (cost shs. 980,000,000) Written Down Value on
December 31, 1999 shs. 659,000,000.
 Furniture (cost shs. 280,000,000) Written Down Value on
December 31,1999 shs.227,000,000
 Sales proceeds of shs.120,000,000 received were included in
gross operating profit.
(ii) Depreciation during the year to December 31, 1999 was as follows:- Machinery
shs. 196,000,000
- Furniture shs. 24,000,000

Depreciation rates are 20% and 10% for machinery and furniture respectively

(iii) The following particulars have been extracted from the fixed assets register.

(a) A machine acquired for shs. 180,000,000 on October 1, 1997 was


disposed off for shs. 120,000,000 on December 31, 1999.
(b) Furniture had been acquired as follows:On April 1, 1997 for shs.
160,000,000 On October 1, 1998 for shs. 40,000,000
On July 1, 1999 for shs. 80,000,000

(iv) The rate of tax on companies had been increased from 40% to 50% with
effect from January 1, 1999. The company accounts for Deferred
Taxation on the Deferral method.
Other tax particulars are as follows:-

Type of Asset Rate of Wear and Tear Tax


WDV on
Deduction
01.01.1999

Machinery 37Y2% shs.


570,312,000
Furniture 181/2% shs.
157,500,000

(v) Directors have decided that with effect from January 1, 1999, furniture
should be depreciated on the basis of an estimated effective life of eight
years.

REQUIRED:

Prepare the Deferred Taxation Account showing your calculation of the figures therein.
(20
marks)

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