Final answer:
To calculate the deferred tax asset/liability for December 31, 2027, we need to determine the net book value of the depreciable asset at that date. Since Parent is depreciating the asset straight line over a 10 year period with no residual value, we can divide the original cost of the asset ($105,000) by 10 to get the annual depreciation expense. Therefore, the annual depreciation expense is $10,500.
Step-by-step explanation:
To calculate the deferred tax asset/liability for December 31, 2027, we need to determine the net book value of the depreciable asset at that date. Since Parent is depreciating the asset straight line over a 10 year period with no residual value, we can divide the original cost of the asset ($105,000) by 10 to get the annual depreciation expense. Therefore, the annual depreciation expense is $10,500. To find the net book value for December 31, 2027, we subtract the cumulative depreciation expense from the original cost of the asset:
Net book value = Original cost - Cumulative depreciation expense
Since we are calculating for December 31, 2027, which is 6 years after the purchase, the cumulative depreciation expense would be $10,500 x 6 = $63,000. Therefore, the net book value for December 31, 2027 would be $105,000 - $63,000 = $42,000.
Now, we can calculate the deferred tax asset/liability using the formula:
Deferred tax asset/liability = Net book value x Tax rate x Allowable capital cost allowance rate
In this case, the tax rate and allowable capital cost allowance rate are not provided in the question. Therefore, it is not possible to calculate the deferred tax asset/liability without knowing these rates.