International accounting

Deferred taxes

15.4.2016

Solve the following tax reporting problem

A company operates for ten years and is then dissolved.
It pays annually 10 000 expert fees (that are tax deductible).
Local government gives it an penalty fee of 5 000 annually.
At the beginning of first year it buys a maching (purchase price 500 000), that it deducts fully during the ten years using a straigth line depreciation.
In tax returns it uses a 25% depreciation calulated from the remaining balance sheet value in the tax return (menojnnspoistoja). The company aims at
minimizing it taxes but does not report negative taxable results in its tax returns.
In last year it will make an additional tax deduction in its tax retun because by that time the machine has lost is value an ability to generate positive cash
flows.
Apply 20 % tax rate in all calculations.
IFRS Income statement
Year
Revenues
Expert expense
Penalty fee
Depreciation
EBIT
Tax
Profit for the period

1
2
3
100 000 100 000 100 000
10 000 10 000 10 000
5 000
5 000
5 000
50 000 50 000 50 000
35 000 35 000 35 000
8 000
8 000
8 000
27 000 27 000 27 000

4
100 000
10 000
5 000
50 000
35 000
8 000
27 000

5
6
7
8
9
10
100 000 100 000 100 000 100 000 100 000 100 000
10 000 10 000 10 000 10 000 10 000 10 000
5 000
5 000
5 000
5 000
5 000
5 000
50 000 50 000 50 000 50 000 50 000 50 000
35 000 35 000 35 000 35 000 35 000 35 000
8 000
8 000
8 000
8 000
8 000
8 000
27 000 27 000 27 000 27 000 27 000 27 000