Cartier Ltd, a multinational operating in Ghana purchased a plant for Tsh 600,000 on 1 January 2015. Cartier Ltd depreciates its plant using the straight line method over 15 years, assuming a residual value of 10% of original cost. Cartier Ltd claims all available tax depreciation allowances. On 1 January 2016, Cartier Ltd revalued the plant and increased its carrying value by Tsh 50,000. The asset’s useful life was not affected. Assume there were no other temporary differences in the period.
i) Calculate the amount of Cartier Ltd’s deferred tax balance at 31 December 2016 in accordance with IAS 12 Income Taxes.
ii) Calculate the change in Cartier Ltd’s deferred tax balance for the year ended 31 December 2016 and explain how the change would be treated in Cartier Ltd’s statement of profit or loss for the year to 31 December 2016.
(Note: Assume an applicable tax rate of 25% and capital allowance of 50% of carrying amount in the first year and 25% in the second year).