Illustration of Deffered Tax
A firm bought an item of plant at a total amount of £50,000. During the first year, the firm provided for depreciation of 10,000. The item of plant has a capital allowance of`£15,000 for the first year.
Compute the carrying amount of the asset, the tax base and hence the temporary difference.
Carrying amount cost – depreciation
=50,000-10,000 =40,000
Tax base cost – capital allowance
=50,000-15,000 =35,000
Temporary differences carrying amount – tax base
=40,000-35,000 =£5,000