I'm a self studying student and have a couple of deferred tax questions. I've searched through AWeb and can't see that the following has been asked.
A small company buys a Van for 10,000. At year end it claims AIA in full and the van has a book value of 8,000. Therefore we have the following:-
BV - 8,000
Deferred tax of 8,000 x 20% = 1,600.
So we credit the B/S with 1,600 and debit the p&l with 1,600.
My confusion is what happens in subsequent years.
Say in yr 2, the van has a book value of 6,000.
The TWDV is still 0
So is there a deferred tax charge of 6,000 x 20% = 1,200?
And does the balance sheet amount of deferred tax increase to 2,800, while there is a P&L charge of 1,200? And does the same process happen year on year until the van is disposed?
Or does something else happen?
As above for year 1.
In year 2 the company disposes of the van and its sales proceeds are 1,000.
So book value is 8,000 and disposal proceeds of 1,000 give a loss on disposal of 7,000.
What happens to the deferred tax of 1,600 that's on the balance sheet? Do you just debit the 1,600 from the balance sheet and credit the P&L with it? ?Or does something else happen?
Thanks for reading. The text books only seem to illustrate what happens in yr 1.