As noted above in addition to the capital gain because this is a depreciable

As noted above in addition to the capital gain

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cost of $40 000) is taxable. As noted above, in addition to the capital gain, because this is a depreciable asset, any tax depreciation recouped from the sale of the asset is also taxable. Tax depreciation recouped is equal to any remaining proceeds of sale, after capital gains, in excess of the tax written down amount of the asset. As shown below, there is a taxable temporary difference of $35 000 associated with the recovery of the asset. The taxable temporary difference can be disaggregated between the $5000 capital gain and $30 000 recoupment of depreciation: Recovery by sale $ $ Sales proceeds (recovery of cost of $40 000 plus $5000 capital gain) 45 000 Less: Tax written-down cost Cost 40 000 Depreciation   (30 000)   (10 000) Taxable temporary difference    35 000 The deferred tax liability is $35 000 × 30% = $10 500.
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72 | FINANCIAL REPORTING Question 4.12 Part A Construct a table identifying all taxable and deductible temporary differences for AAA Ltd for the year ending 31 December 20X1, and a table identifying all taxable and deductible temporary differences for AAA Ltd for the year ending 31 December 20X2. The tables should include the carrying amounts of the assets and liabilities, their corresponding tax bases and the two types of temporary differences: taxable and deductible. The bottom section of the table should illustrate the calculation of the deferred tax asset and liability for the year. Part B How would the answer for the year ended 31 December 20X2 differ if the tax rate changed from 30 per cent to 25 per cent in 20X2? Part A Taxable Deductible Carrying temporary temporary amount Tax base difference difference 20X1 $ $ $ $ Receivable 55 000 55 000 Inventory 2 000 2 000 Investments 33 000 33 000 Buildings 24 000 20 000 4 000 Plant and equipment 10 000 10 000 Warranty obligations 10 000 10 000 Goodwill 10 000 10 000 Accounts payable 500 500 Long-term debt 20 000 20 000 Total 59 000 10 000 Deferred tax liability (× 30% tax rate) 17 700 Deferred tax asset (× 30% tax rate) 3 000 Taxable Deductible Carrying temporary temporary amount Tax base difference difference 20X2 $ $ $ $ Receivable Inventory 2 000 2 000 Investments 33 000 33 000 Buildings (refer to Table 4.17) 36 000 10 000 26 000 Plant and equipment 10 000 10 000 Warranty obligations Goodwill 10 000 10 000 Accounts payable 500 500 Long-term debt 20 000 20 000 Total 26 000 0 Deferred tax liability (× 30% tax rate) 7 800 Deferred tax asset (× 30% tax rate) 0
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STUDY GUIDE QUESTIONS AND ANSWERS | 73 Part B Current tax liabilities (assets) are to be recognised at each reporting date at the amounts that are expected to be paid to (recovered from) the taxation authorities. The tax rates and tax laws to be applied are those that have been enacted or substantively enacted by the end of the reporting period (IAS 12, para. 46). Deferred tax assets and liabilities are to be measured at the tax rates expected to apply on realisation or settlement of the deferred tax assets and deferred tax liabilities, respectively.
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