Able Ltd Has an Asset in Its Books with a Carrying

question 11

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)
• \(\begin{array}{llr}
• \text { Dr Deferred Tax Liability} &\$ 3000 \\
• \text {Cr Deferredincome Tax Exnense } &&\$ 3000\\
• \end{array}\)
• B)
• \(\begin{array}{llr}
• \text { Dr Deferred Tax Asset } &\$ 3000\\
• \text { Cr Deferred Income Tax Liability} & &\$ 3000\\
• \end{array}\)
• C)
• \(\begin{array}{llr}
• \text { Dr Deferred Tax Asset } & \$ 3000\\
• \text {Cr Deferred Income Tax Expense } && \$ 3000\\
• \end{array}\)
• D)
• \(\begin{array}{llr}
• \text { Dr Deferred Income Tax Expense } &\$ 3000\\
• \text { Cr Deferred Tax Liability} &&\$ 3000\\\
• \end{array}\)

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Definitions:

Sunk Costs

Expenses that have already been incurred and cannot be recovered or altered, and should not affect future business decisions.

Project Analysis

Project analysis involves assessing the viability, impact, and feasibility of a project before financial resources are allocated.

Erosion

The gradual loss or decline of an economic or business value over time.

Product Market

The marketplace in which final goods or services are offered to consumers, businesses, and the public sector.