Able Ltd Has an Asset in Its Books with a Carrying

question 14

Multiple Choice

Able Ltd has an asset in its books with a carrying amount of $120 000 and a tax base of $90 000.The income tax rate has been 30% but in the current year it has been increased to 40%.Able Ltd should make the following entry in its books:

• A) Dr Deferred Tax Liability\(\quad\$ 3000\)
• Cr Deferred Income Tax Expense\(\quad\$ 3000\)
• B) Dr Deferred Tax Asset\(\quad\$ 3000\)
• Cr Deferred Income Tax Liability\(\quad\$ 3000\)
• C) Dr Deferred Tax Asset\(\quad \$ 3000 \)
• CrDeferred Income Tax Expense\(\quad \$ 3000 \)
• D) Dr Deferred Income Tax Expense \(\quad \$ 3000\)
• Cr Deferred Tax Liability\(\quad\$ 3000\)

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Definitions:

Sales Estimates

Forecasts of the quantity of a product or service a business expects to sell in a certain period, which is crucial for financial planning and inventory management.

Production Estimates

Projections or forecasts of the volume or quantity of goods that a company plans to manufacture in a given period.

Units

In the context of business, units refer to the individual items or quantities of a product or service that are produced or sold.

Production Budget

An estimation of the total costs to produce a set amount of goods over a specific period.