A company, ABC Ltd. prepared its accounts annually on 31st March. On 1st April, 2001,
it purchases a machine at a cost of Rs.1,50,000/-. The machine has a useful life of three
years and an expected scrap value of zero. Although it is eligible for a 100% first year
depreciation allowance for tax purposes, the straight-line method is considered appropriate
for accounting purposes. ABC Ltd. has profits before depreciation and taxes of
Rs.2,00,000/- each year and the corporate tax rate is 40 percent each year.
The purchase of machine at a cost of Rs.1,50,000/- in 2001 gives rise to a tax saving of
Rs.60,000/-. If the cost of the machine is spread over three years of its life for accounting
purposes, calculate the profit after tax and deferred tax liability for the years ending
March 2002, 2003 and 2004.
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