Hi guys i was wondering if any one could help me with the following scenario
Pre tax profit of radfern ltd for the last three years have been as follows:
31/08/2012 125,000
31/08/2013 130,000
31/08/2014 135,000
in the year 31st august 2012, there was a taxable temporary difference of £50,000 between accounting profit and taxable profits. £10,000 of this difference was reversed in the year to 31st august 2013 and the remaining £40,000 was reversed in the year 31st august 2014.
a) assuming a tax rate of 20% throughout, demonstrate that if the company did not account for deferred tax, its profit after tax would appear to be on the downward trend, even though pre tax profits are rising and tax rates have remained unchanged
b) Show the transfer that should be made to or from the deferred tax account in each year?
Pre tax profit of radfern ltd for the last three years have been as follows:
31/08/2012 125,000
31/08/2013 130,000
31/08/2014 135,000
in the year 31st august 2012, there was a taxable temporary difference of £50,000 between accounting profit and taxable profits. £10,000 of this difference was reversed in the year to 31st august 2013 and the remaining £40,000 was reversed in the year 31st august 2014.
a) assuming a tax rate of 20% throughout, demonstrate that if the company did not account for deferred tax, its profit after tax would appear to be on the downward trend, even though pre tax profits are rising and tax rates have remained unchanged
b) Show the transfer that should be made to or from the deferred tax account in each year?