Draft the extracts from the income statement and balance sheet

HW buys an asset in 20X1 costing $80,000 that qualifies for an immediate 100% tax relief on cost. HW plans to depreciate the asset on a straight line basis over 4 years. HW has accrued $30,000 for tax due for the year ended 31 December 20X1.

In 20X2 HW makes $120,000 profit that is subject to tax at 30%. During the year $28,600 is paid in respect of tax on profits of 20X1. There were no additions to non-current assets in the year.

Requirements

Calculate the tax charge for 20X2 and any movement in deferred tax for the year.

Draft the extracts from the income statement and balance sheet in respect of income tax and deferred tax.

Solution:

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