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QUESTION 2
The following information are related to Kasa Bhd’s accounts for the financial year ending 31 December 2022:
a. The carrying amount of a machine as of 1 January 2022 was RM1,280,000. The machine was purchased on 20 January 2020, for RM1,600,000, and it is depreciated at 10% per year on a straight-line method on yearly basis. The Inland Revenue Board allows an annual allowance of 15% on such assets, a well as an initial allowance of 10%.
b. The carrying amount of freehold land as at 31 December 2022 is RM8,000,000. On 31 December 2022, Kasa revalued it freehold land to RM10,000,000. Currently, the management has no intention of selling the land. Land is not a qualifying asset and is not eligible for capital allowances.
C. An allowance for doubtful debts of 5% is to be made for the year 2022. On 31 December 2022, the gross amount of accounts receivable amounted to RM100,000.
d. The company also recognised a liability of RM300,000 for accrued product warranty costs on 31 December 2022. These product warranty costs will not be deductible for tax purposes until they are paid.
e. A development expenditure of RM1,000,000 was incurred during the year 2022. The tax authority allows all research and development costs to be written off immediately when computing taxable profit.
f. The business obtained a 10% bank loan worth RM2,000,000 on 5″ March 2022. However, only 92.5% of interest has been paid during the year. The balance is to be accrued to the following year until it is paid.
Additional Information:
1. The corporate tax rate is 24% for the year assessment 2020, 2021 and 2022.
2. Profit before tax for the year 2022 was RM500,000.
3. Taxable temporary differences as of 1 January 2022 were RM258,000.
4. The tax treatment is in accordance with the Income Tax Act 1967.
5. The land has been held for three years and the applicable Real Property Gain Tax (RPGT) rate is 30%.
Required:
a) Explain briefly the temporary difference approach in accounting for deferred tax in accordance with MFRS 112 /ncome Taxes.
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