A231 BKAR3033 FINACIAL ACCOUNTING AND REPORTING III

MINI CASE 4: DEFERRED TAX

SUBMISSION DATE: 28 December 2023
Instruction: This mini case is an individual work. You are required to answer ALL questions.

QUESTION 1

Darulaman Farm Bhd (DFB) is a holding company which operates mainly in plantation
industry. The company closes its accounts on 31 December each year. The following is the
carrying amount of assets and liabilities of the company as at 31 December 2022:

Carrying amount
(RM)
Property, plant and equipment 3,025,000
Land 800,000
Intangible assets 33,500
Inventories 113,000
Accounts receivable 355,000
Interest receivable 30,000
Cash 156,320
Accounts payable 185,000
Unearned revenues 15,000
Penalty payables 5,000
Borrowings 1,250,000

Additional information:

1. Details of the property, plant and equipment were as follows:

Building Equipment
Date of purchase 1/1/2020 1/1/2019
Cost 2,500,000 1,500,000
Capital allowance:
Initial allowance 20% 20%
Annual allowance 14% 10%

During the financial year 2022, no additional purchase and disposal of property, plant and
equipment.
2. The intangible assets consist of development expenditure of DFB’s project incurred during
2020. DFB capitalized this cost and amortizes the cost over the expected useful life of the
asset.
3. Interest receivable is interest revenue earned from the investment in government bond.
4. Unearned revenues were rent collected in advance on 1 November 2022. The amount
reported in statement of financial position is the revenue for January 2023.
5. A RM5,000 fine paid for violation of pollution law was imposed by the government on the
company in financial year 2022.

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6. The balance of deferred tax liability on 1 January 2022 was RM50,150. The corporate tax
rate for 2022 was 24%.
REQUIRED:

(a) Prepare a table to determine the carrying amounts, tax base and differences for each of
the above items as at 31 December 2022. Indicate whether the difference is taxable
temporary difference (TTD), deductible temporary difference (DTD) or permanent
difference (PD).
(14 Marks)

(b) Compute the tax expense for the financial year 2022.
(4 Marks)

(c) Briefly explain the liability method as per MFRS 112 Income Taxes.
(2 Marks)

QUESTION 2

Glokal Bhd develops and markets semi-conductor related products. The company closes its
accounts on 31 December each year. The carrying amount of assets and liabilities of the
company as at 31 December 2021 were as follows:

Notes Carrying amount

(RM)
Property, plant and equipment 1 60,040,860
Land 2 2,500,000
Research and development costs 3 123,500
Inventories 113,000
Accounts receivable 3,995,000
Cash 256,320
Accounts payable 8,185,000
Unearned revenues 4 15,000
Other payables 5 55,000
Long-term debts 20,250,000

Notes:

7. Details of the property, plant and equipment were as follows:

Building Equipment
Date of purchase 1/1/2021 1/1/2020
Qualifying expenditure 57,546,000 6,715,200
Capital allowance:
Initial allowance 10% 20%
Annual allowance 3% 20%

During the financial year 2021, no additional purchase and disposal of property, plant and
equipment.

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8. The cost of the land was RM2,000,000 and revalued to RM2,500,000 in year 2021.
9. Research and development costs was incurred in 2020. The expenditure was eligible for
double tax deduction for that particular year. Glokal Bhd capitalized this cost and amortizes
the cost over the expected useful life of the asset.
10. Unearned revenues were rent collected in advance on 1 October 2021. The amount reported
in statement of financial position is the revenue for January 2022.
11. Other payables comprised provision for warranty and a penalty of RM5,000 imposed by
the government.
12. The taxable profit for the year ended 31 December 2021 was RM10,451,250.
13. The balance of deferred tax liability on 1 January 2021 was RM1,235,000. The corporate
tax rate for 2021 was 24%.

REQUIRED:

(a) Prepare a table showing the carrying amounts and tax base for each of the above items
as at 31 December 2021. Calculate the temporary difference and indicate whether the
temporary difference is taxable or deductible.

(b) Compute the amount of deferred tax to be reported in the Statement of Profit or Loss
and Other Comprehensive Income for the year ended 31 December 2021.

(c) Explain the meaning of temporary differences and give ONE (1) example.

QUESTION 3
Asman Bhd is one of the suppliers of consumer products in Malaysia. The following were
the carrying amount of assets and liabilities of the company as at 31 December 2022:
Carrying amount
(RM)
Property, plant and equipment 2,500,000
Long-term investment 1,500,000
Development costs 324,000
Accounts receivable 300,000
Interest receivable 30,000
Inventories 100,000
Cash 700,000
Accounts payable 660,000
Unearned rent revenue 100,000
Accrued interest 144,000
Provision for retirement benefit 1,300,000
12% Debenture 1,200,000

Additional information:
1. The cost of machine used in the production was acquired in January 2020 at a cost of
RM3,550,000. The useful life of the machine is 10 years with the residual value of

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 RM50,000. Initial allowance and annual allowance for the machine are 20% and 14%,
respectively.

2. The development costs was incurred in year 2022. This cost achieved the criteria for
capitalisation. Therefore, Asman Bhd capitalised the cost and amortised over the useful
life of the intangible asset.

3. 80% of interest receivable was revenue earned from long-term investment in fixed
deposit and 20% from investment in government bond.

4. Unearned rent revenue was a cash received in advance from the tenant for the year
2023.

5. Accrued interest was incurred for 12% debenture.

6. Asman Bhd made provision for retirement benefits for the year 2022. However, none
of the staff had retired in that year.

7. The corporate income tax rate for the year 2022 was 24%. As at 1 January 2022,
deferred tax liability showed a credit balance of RM5,000.

REQUIRED:
(a) Prepare a table showing the carrying amounts and tax base for each of the above items
as at 31 December 2022. Calculate the temporary difference and indicate whether the
temporary difference is taxable or deductible.

(b) Compute the amount of adjusted deferred tax expense of Asman Bhd assuming the
corporate tax rate for 2021 was 20%.