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II. Mayor Limited purchased a specialised equipment for $14,000,000 on 1 October 2019. It had...

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Accounting

II. Mayor Limited purchased a specialised equipment for $14,000,000 on 1 October 2019. It had an estimated life of 5 years and an estimated residual value of $1,200,000. The plant is depreciated on a straight line basis. The tax authorities do not allow depreciation as a deductible expense.

Instead a tax expense of 40% of the cost of this type of asset can be claimed against income starting tax in the year of purchase and 20% per annum of its cost thereafter for 3 years, straight-line. The rate of income tax can be taken as 35%.

Required:

In respect of the above item of equipment, calculate the deferred tax charge/credit in Bowdens Statement of Comprehensive Income for the two (2) years to 30 September 2019 and 2020 and the deferred tax balance in the statement of financial position at those dates.

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