BKAR3033 FINANCIAL ACCOUNTING AND REPORTING III (A201)

MINI CASE - DEFERRED TAX

SUBMISSION DATE: 20 December 2020

QUESTION 1
Permai Bhd is one of the main manufacturers and suppliers of industrial chemical products
and equipment that had been incorporated in 2010. The following is the carrying amount of
asset and liabilities of the company as at 31 December 2019:
Carrying amount (RM)
Property, plant and equipment 249,200
Intangible assets 138,000
Investment in fixed deposit 107,000
Account receivable 96,700
Interest receivable 10,700
Inventory 206,000
Bank 129,000
Trade payables 197,000
Accrued interest 15,600
Penalties payable 15,500
Unearned revenue 45,300
10% Loan 156,000

Additional information:
1. The cost of the property, plant and equipment is RM356,000 when it was acquired in
2017. Depreciation expense for property, plant and equipment is calculated at the rate
of 10% per year and capital allowance is 20% per year for the first three years from
the cost of the assets.
2. The intangible assets consist of development expenditure of Permai Bhd’s R&D
project incurred during the year that was qualified to be capitalised.
3. Interest receivable is interest revenue earned from the investment in fixed deposit.
4. Meanwhile, interest expense was incurred due to a 10% loan from a financial
institution.
5. Unearned revenue is payment received under a Permai Bhd’s policy that require new
clients to make advance payments before the delivery of goods is made to them.
6. The balance of deferred tax liability on 1 January 2019 was RM8,500. The tax rate for
the assessment year 2019 was 24%.

REQUIRED:
(a) Determine the tax base of asset and liabilities for Permai Bhd and calculate the
temporary difference as at 31 December 2019. Indicate whether the temporary
difference is taxable or deductible.
(b) Compute the deferred tax expenses for 2019.
(c) Explain the effect on the computation of deferred tax expense if the tax rate for the
assessment year 2019 differs from the tax rate for the assessment year 2018. Calculate
the adjusted deferred tax expense of Permai Bhd assuming that the tax rate used in
2018 was 22%.
1
QUESTION 2

Dragon Lord Bhd recognised a deferred tax liability for the year ended 31 December 2017
which is related solely to a difference between rates of capital allowance and depreciation.
The carrying amount of plant and equipment was RM30,000,000 and tax written down value
was RM20,000,000.

The following transaction took place during 2018:

1. During the year, plant was revalued and surplus was RM6,000,000. At the end of the
year, the carrying amount of plant was RM42,000,000 and tax written down was
RM25,000,000. Gains on revaluation are taxable on sale at 20%.
2. Development expenditure of RM12,000,000 was capitalised in accordance with MFRS
138 but is deducted for tax purpose. There was no amortisation during the year.
3. Dragon Lord Bhd has recognised income receivable of RM2,000,000 but none has been
received yet.
4. Dragon Lord Bhd has made provision for environment clean-up of RM1,000,000. The
expenditure will be tax deductible when paid only.
5. The trade receivables were disclosed at RM3,500,000 after providing for doubtful debts
of RM250,000.
6. The tax payable for the year was calculated at RM3,300,000.
7. Corporate tax rate for 2017 and 2018 were 24%.

REQUIRED:

(a) Prepare a table showing the carrying amounts tax base and temporary differences for
each of the items as at 31 December 2018.

(b) Calculate the amount of tax expense as charged in the Statement of Profit or Loss and
Other Comprehensive Income and the amount disclosed in the deferred tax liability in
the Statement of Financial Position as at 31 December 2018.

2
QUESTION 3

Sepakat Bhd (Sepakat) is a manufacturing company, incorporated in Malaysia since year

2014. The following information are extracted from the financial accounting record of
Sepakat for the year ended 31 December 2018.

1. During the year, depreciation expense and capital allowance for plant were
RM800,000 and RM890,000 respectively. At the end of the year, the carrying amount
of plant was RM6,100,000 and tax written down was RM3,680,000.
2. A research and development cost amounted to RM2,000,000 incurred during year
2018. Sepakat capitalises product development cost and amortises them over the
expected useful lives of the products. Amortisation of product development cost for
year 2018 was RM600,000. As at 31 December 2017 and 2018, the product
development cost (intangible asset) were RM4,000,000 and RM5,400,000
respectively. Current tax laws allows all research and development costs to be
written off immediately in computing taxable profit.
3. Sepakat maintains a provision for warranty costs in relation to warranties given for
products sold. The balances in the provision account as at 31 December 2018 was
RM3,300,000.
4. As at 31 December 2017 and 2018, accrued interest expenses were RM800,000 and
RM900,000 respectively. Interest expenses are allowable for income tax purpose
when paid. Interest paid in 2018 was RM800,000.
5. A donation of RM500,000 was made to Inland Revenue Board’s unapproved
institution.
6. The taxable profit for the year ended 31 December 2018 was RM2,430,000.
7. Corporate tax rate for 2017 and 2018 were 24%.
8. The balance of deferred tax liability on 1 January 2018 was RM790,000.

REQUIRED:

(d) Prepare a table showing the carrying amounts and tax base for each of the above items
as at 31 December 2018. Calculate the temporary difference and indicate whether the
temporary difference is taxable or deductible.
(8 Marks)
(e) Calculate the amount of tax expense as charged in the Statement of Profit or Loss and
Other Comprehensive Income. Prepare the necessary journal entry.
(5 Marks)
(f) Prepare an extract of the Statement of Financial Position as at 31 December 2018
related with taxation.
(2 Marks)
(g) Briefly explain the method applied in the MFRS 112 Income Taxes to calculate
deferred taxes.
(2 Marks)