Question

Company D started business on January 1, 20X1, and bought the following piece of equipment. Cost of asset $300,000 Salvage 30,000 Useful life 5 Tax rate 21% 20X1 estimated tax payment 6,000 Depreciation for book and tax purposes is as follows: Book Tax 20X1 54,000 120,000 20X2 54,000 72,000 20X3 54,000 43,200 20X4 54,000 25,920 20X5 54,000 8,880 What is the ending balance of deferred taxes payable-depreciation on the December 31, 20X3 balance sheet? (You do not need income statement information to compute the amount of the deferred balance on the balance sheet.)

Answer 1

Deferred Taxes Payable arise when there is a difference of expense in books of accounts from the expense claimed as per Income tax laws, and the expense claimed as per Income tax laws is greater than the expense recognized in books of accounts.

In the given case

Total depreciation up to 20×3 as per book

= $162,000 ($54000+$54000+$54000)

Total depreciation up to 20×3 as per tax purpose

= $ 235,200 ($120000+$72000+$43200)

Difference in depreciation expenses = $73200

($235200-$162000)

Differed tax payable = $73200 × 21℅ = $15,372.