Tissues Plc Has a Depreciable Asset That Is Estimated for Accounting

question 52

Multiple Choice

Tissues Plc has a depreciable asset that is estimated for accounting purposes to have a useful life of 8 years.For taxation purposes the useful life is 5 years.The asset was purchased at the beginning of year 1,there is no residual value,and the straight-line method of depreciation is used for both tax and accounting purposes.The tax rate is 30% and the cost of the asset is £100 000.What is the amount of the deferred tax liability account generated by this asset at the end of years 1,2 and 3?

• A)End of year 1 £0; year 2 £2250; year 3: £4500
• B)End of year 1 £7500; year 2 £15,000; year 3: £22 500
• C)End of year 1 £6750; year 2 £4500; year 3: £2250
• D)End of year 1 £2250; year 2 £4500; year 3: £6750

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Definitions:

Imperfectly Competitive

A market structure where individual firms have some control over the price of their products due to factors like brand differentiation and barriers to entry.

Future Value

The value of an investment or sum of money at a specified future date, calculated by applying a rate of interest or return.

Stock Portfolio

A collection of stocks owned by an individual or an institution, managed as a single entity with specific investment goals and strategies.

Equilibrium Interest Rate

The interest rate at which the demand for funds equals the supply of funds, balancing savings and investments.