prepare a the tax reconciliation in absolute numbers ias 12 81 c i as well as b the 612625

Deferred tax and tax (rate) reconciliation

Entity E was founded on Jan 01, 01. E”s profit before tax according to IFRS for 01 is CU 100. E”s taxable profit for 01 is CU 104. The difference between these amounts arose as follows:

• On Nov 01, 01, E acquired a machine for CU 120. The machine was available for use on the same day. E depreciates the machine on a monthly basis. However, under E”s tax law, the machine has to be depreciated for six months in 01 because depreciation starts at the beginning of the half-year in which the machine is available for use. The machine”s useful life is 10 years according to IFRS as well as for tax purposes.
• In 01, expenses of CU 8 were incurred for charitable donations. These are not deductible for tax purposes.

Required

(a) Prepare any necessary entries in E”s financial statements as at Dec 31, 01, taking current and deferred tax into account. The tax rate is 25%. Assume that no tax prepayments (see Example 1) are necessary.

(b) Prepare (a) the tax reconciliation in absolute numbers (IAS 12.81(c)(i)) as well as (b) the tax rate reconciliation (IAS 12.81(c)(ii)) for 01.