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QUESTION 2 Bright plc's chief accountant is preparing the draft financial statements for the year ended 30 April 2015. She is calculating the deferred tax balance and has noted the following points: The tax written down value of property, plant and equipment is 20m as at 30 April 2015, compared to an accounting net book value of 32m. Her five year forecasts, produced for tax planning purposes, indicates that the tax written down value will be 14m by 30 April 2017 and the accounting net book value will be 18m. Planned capital investment will increase the tax written down value to 36m by 30 April 2018 and the accounting net book value will be 50m. Bright plc pays tax at a rate of 20%. IAS 12 Income Taxes requires that deferred tax on these timing differences be calculated using the full provision basis, but the chief accountant is interested in comparing the results from the full provision basis with the two alternatives that have been proposed in the past: the nil provision and the partial provision. Required 2.1 Calculate the deferred tax balances that Bright plc would report as at 30 April 2015 using each of the full provision, the partial provision and the nil provision bases. 6% 2.2 Compare and contrast the usefulness of the figures produced under each of these three bases. 9% Total 15% QUESTION 2 Bright plc's chief accountant is preparing the draft financial statements for the year ended 30 April 2015. She is calculating the deferred tax balance and has noted the following points: The tax written down value of property, plant and equipment is 20m as at 30 April 2015, compared to an accounting net book value of 32m. Her five year forecasts, produced for tax planning purposes, indicates that the tax written down value will be 14m by 30 April 2017 and the accounting net book value will be 18m. Planned capital investment will increase the tax written down value to 36m by 30 April 2018 and the accounting net book value will be 50m. Bright plc pays tax at a rate of 20%. IAS 12 Income Taxes requires that deferred tax on these timing differences be calculated using the full provision basis, but the chief accountant is interested in comparing the results from the full provision basis with the two alternatives that have been proposed in the past: the nil provision and the partial provision. Required 2.1 Calculate the deferred tax balances that Bright plc would report as at 30 April 2015 using each of the full provision, the partial provision and the nil provision bases. 6% 2.2 Compare and contrast the usefulness of the figures produced under each of these three bases. 9% Total 15%

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