Aidan Ltd, a profitable company, purchased a machine on 1 July 2014 at a cost of

Question

Aidan Ltd, a profitable company, purchased a machine on 1 July 2014 at a cost of $120 000. The machine had a useful life of 5 years and the company adopts the straight-line basis of depreciation. On 1 July 2015, the company reassessed the useful life of the machine down from the remaining 4 years to an expected 3 years. The accounting depreciation charge was adjusted accordingly. Because of a change in economic conditions, the machine was sold for S55 000 on 30 June 2017. The tax depreciation rate for this type of machine was 15% p.a. The company tax rate is 30%. Required For each of the 3 years ended 30 June 2015, 2016 and 2017, calculate the carrying amount and tax base of the asset, and determine the deferred tax entry in relation to the machine. Explain your answer.

Explanation / Answer

Old Depriciation Depriciation Per year 120000/5 = 24000 Depriciation after first year (120000-24000)/3 = 32000 Assets balance as per tax base Cost of Acquisiton Dep Accu. Dep Sale Vale Balance profit/loss July-14- June 15 120000 18000 18000 102000 July-15- June 16 120000 18000 36000 84000 July-16- June 17 120000 18000 54000 66000 120000 54000 55000 0 -11000 Loss Assets balance as perAccount base Cost of Acquisiton Dep Accu. Dep Sale Vale Balance July-14- June 15 120000 24000 24000 96000 July-15- June 16 120000 32000 56000 64000 July-16- June 17 120000 32000 88000 32000 120000 88000 55000 0 23000 gain Calculation of deffred tax A/C base Tax base Difference Defferd tax assets 1 96000 102000 6000 1800 2 64000 84000 20000 6000

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