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Assuming company A receives royalty from Company B on which Company B is expected to deduct a 10% Withholding tax (WHT). However, the 10% WHT suffered is available for Company A to use and offset her tax liabilities. Should Company A recognise 100% of the royalty for the year as income or should it recognise 90%?
I would like to understand the substance of the transaction.
This is hardly a P2 question but I imagine that company A should recognise $100 income and $10 tax credit
Double entry to gross up the $90 cash received would be
Dr Current Tax account 10
Cr Royalty Income 10Ok?
Thank you. It’s not a P2 question. It’s just some practical issues in the office.
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