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MASB25 Income Taxes pg11

The appendix is illustrative only and does not form part of the standards. The purpose of the appendix is to illustrate the application of the standards to assist in clarifying their meaning. Extracts from income statements and balance sheets are provided to show the effects on these financial statements of the transactions described below. These extracts do not necessarily conform with all the disclosure and presentation requirements of other MASB Standards.

All the examples in this appendix assume that the enterprises concerned have no transaction other than those described.

Example 1 - Depreciable Assets

An enterprise buys equipment for RM10,000 and depreciates it on a straight line basis over its expected useful life of five years. For tax purposes, the equipment qualifies for an initial allowance and an annual allowance of 20% each. Tax losses may only be carried forward to offset against future taxable profits. The enterprise has sufficient taxable profits in the next five years to utilise the benefit of any tax loss. The tax rate is 30%.

The enterprise will recover the carrying amount of the equipment by using it to manufacture goods for resale. Therefore, the enterprise's current tax computation is as follows:

The enterprise recognises a current tax asset at the end of years 1 to 4 because it recovers the benefit of the tax loss against the future taxable profits.

The temporary differences associated with the equipment and the resulting deferred tax asset and liability and deferred tax expense and income are as follows:

The enterprise recognises the deferred tax liability in years 1 to 4 because the reversal of the taxable temporary difference will create taxable income in subsequent year 5. The enterprise's income statement is as follows:

Example 2 - Temporary Differences and Computation of Deferred Tax

The following items relate to the accounts of Mulia Sdn Bhd for the financial years ended 31 December 19x7 and 19x8:

1. Net book value of fixed assets was RM7,600 and RM8,800 as at 31 December l9x7 and 19x8 respectively. Included in these amounts were net book values of land and building of RM2,000 in 19x7 and RM2,500 in 19x8. The residual expenditures of qualifying fixed assets as at 31 December 19x7 and 19x8 were RM3,100 and RM3,680 respectively.

2. Mulia capitalises product development expenditures and amortises them over the expected useful lives of the products to which the expenditures relate. As at 31 December 19x7 and 19x8, the deferred expenditures in the accounts were RM4,000 and RM5,600 respectively. Product development expenditures are claimed for income tax purposes when incurred.

3. The company maintains a provision for warranty costs in relation to warranties given for products sold. As at 31 December 19x7 and 19x8, the balances in the provision account were RM3,000 and RM3,600 respectively. Warranty costs are deductible for income tax purposes when incurred.

4. As at 31 December 19x7 and 19x8, accrued interest expenses were RM800 and RM900 respectively. Interest expenses are allowable for income tax purposes when paid.

5. Income tax rate was 30% in 19x7 and 28% in 19x8.

The computation of deferred tax is as follows:

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