The tax computation is given below:
Tax Computation
Timing adjustments
Profit per accounts
1,500,000
Add: absolute adjustments: Disallowed legal costs
42,000
Disallowed entertaining expenditure
58,000 _________ 1,600,000
Profit plus absolute adjustments
Timing adjustments: Add: Depreciation on plant, furniture and equipment
392,000 270,000 110,000
(392,000) (270,000) (110,000)
Closing general bad debt provision Closing unpaid pension contribution
Less: Capital allowances
(362,000) (350,000) (80,000)
362,000 350,000 80,000
Opening general bad debt provision Opening unpaid pension contribution
_________ 1,580,000
Adjusted profit for the year
Less: Losses brought forward
(580,000)
580,000
_________ 1,000,000
Taxable profits
_______ 600,000
Total timing differences
Corporation Tax payable: £1,000,000 at 28% Deferred Tax charge: £600,000 at 28%
280,000 168,000 _______ 448,000
168,000
Total tax charge
1.7 The deferred tax charge is £600,000 at 28%, which is £168,000. In order to understand this charge against profits, we need to understand its constituent parts:
1.7.1 the depreciation is £392,000 and the capital allowances are £362,000. The capital allowances and depreciation on plant, equipment vehicles, furniture, etc., are equal over the life of the asset: however, the charges in the accounts for this capital expenditure is at a different rate from that at which capital allowances are available. There is therefore a mismatch between the accounts and the tax treatment.
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