Kirk Patton plc purchased an item of plant for $4,000,000 on October 1, 2000. It had an estimated life of eight years and an estimated residual value of $800,000. The plant is depreciated on a straight-line basis. The tax authorities do not allow for depreciation as a deductible expense. Instead a tax expense of 40% of the cost of this type of asset can be claimed against corporation tax in the year of purchase and 20% per annum (on the reducing balance basis) of its tax base thereafter. The rate of corporation tax can be taken as 25%.
Required:
Calculate the deferred tax charge/credit in Kirk’s income statement and balance sheet for each of the years
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