deffer tax

I don’t know what deffer tax is, nor differ tax!

However, if you are referring to deferred tax….

Open 2 T accounts, 1 for deferred tax and one for current tax

Put in the figures brought forward from the question….beware that you put the brought forward figures on the correct side – they could be a brought forward debit OR credit or one of each.

The question could now say one of two things:-

1) the book value of the tangible net assets was (say) $40 million greater than their tax value, and a tax rate will be given (say 20%),or

2) there needs to be a deferred tax provision of $10 million

In the first case, multiply the $40m by the tax rate = $10 million

So now, in both situations, you have the carry forward amount ($10 million in the above two cases). Put that amount in the debit side of the deferred tax account “above the line” and bring it down on the credit side “below the line” . Now balance off the deferred tax account and double enter the balancing figure to the current tax account.

The current tax account comes next. You have already (probably) got a brought forward figure and now you have the double entered balancing figure from the deferred tax account.

For the current tax account, the question will say one of two things:-

1) the current tax liability / provision is $XXXX or

2) the charge for current tax is $xxxx

In the first instance, the figure for the carry forward is given so …. carry it forward. Debit the carry forward amount in the current tax account “above the line” and credit the account with the same amount “below the line”

In the second instance, you are given the Statement of Income tax charge which is to be debited to the Statement of Income and therefore credited to the current tax account.

In both situations you are now able to balance off the current tax account. In the first case, the balancing figure is the charge to be debited (or, rarely, credited) to the Statement of Income.

In the second case, the balancing figure is the liability to carry forward

I think that should do it but, if you need to, post again