UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

UBAF3013 ADVANCED ACCOUNTING PRACTICE
BACHELOR OF COMMERCE ACCOUNTING
MAY 2020
SOLUTION TOPIC 2 – DEFERRED TAXATION

QUESTION 1:

ITEM CA TB TTD/(DTD)
(a) Development expenditure 14,200 NIL 14,200
The tax base will be NIL as the development expenditure is deductible when incurred.

(b Interest receivable 2,500 NIL 2,500

)
The tax base will be NIL as the interest received is taxed on cash basis.

(c) Warranties (1% x 10,000) 100 NIL (100)

The tax base will be NIL as the expenses are allowed as deductible only when the goods
are returned or repaired. None will be recognized as an expense or as a liability.

QUESTION 2:

(i)
CV Tax Base TTD DTD
RM RM RM RM
Property 3,000,000* 3,000,000* - -
Machinery 1,800,000* 300,000* 1,500,000 -
R&D 600,000* Nil* 600,000 -
Warranties 105,000* Nil* - 105,000
TTD 2,100,000* 105,000*
DTD 105,000
Net 1,995,000
DTL at 30% (c/f) 598,500**
b/f (234,000)*
Charge in IS 364,500*

(ii) Journal entry:

RM RM
Dr Tax expense 364,500*
Cr Deferred tax liability 364,500*

1
(iii) Timing differences:
 Timing differences are the differences between accounting profits and
taxable profits that arise because the period in which some items of income
and expenses included in the accounting profits does not coincide with the
period in which they are included in taxable profits.*

 These differences arise because accounting profits are determined by

accounting standards such as those MASB standards.*

 However taxable profits are governed by tax laws which sets out the basis
for the computation of income tax payable.*

 For example, accounting rule may specify that certain revenues be included in
accounting profit at the time when goods are delivered or services rendered
(accrual basis), but the tax laws may require or allow their inclusion in
taxable profits only at the time when cash is collected (cash basis).*

 Another example is when capital allowances on a qualifying property, plant

and equipment are computed on an accelerated basis for tax purposes, but
the depreciation policy on the same property, plant and equipment may be on a
straight-line basis for accounting purposes.*

QUESTION 3:

(i)
Carrying Tax base Taxable Deductible
amount temporary temporary
difference difference
RM’000 RM’000 RM’000 RM’000

PPE 320,000 280,000 40,000**

Trade receivables 64,000 80,000 (16,000)**
Research and development 18,000 - 18,000*
Commission receivable 5,000 - 5,000*
Warranty 8,000 - (8,000)*

63,000 (24,000)
Net temporary differences 39,000*

(ii) Deferred tax liability = 30% x RM39,000,000

= RM11,700,000**

(iii) Dr Tax expense** (11,700,000 – 2,200,000) RM9,500,000

Cr Deferred tax liability* RM9,500,000