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Hi all. When there is a property revaluation, it creates a deferred tax liability (DTL). The treatment is DR RR, DR Tax (bal), CR DTL. Am I right? I applied this method to the following question and got more confused.
co’s trial balance = current tax DR bal $0.7m, deferred tax CR bal $8.4m
estimated provision for income tax $4.5m, required deferred tax provision $5.6m, of which $1.2m relates to property revaluation.
I set up 2 T a/c: prov for current tax, and deferred tax
i start with def tax to get def tax movement, which i bring over to prov for current tax to calculate balancing figure for P/L tax expense. But my answer was wrong because I didn’t include 1.2m in my prov for current tax.
But if I did, it would be on CR side of prov for current tax, it doesn’t seem right. Would that mean it would be a DR side of tax expense? What ARE all the double entries for taxation?
Thanks in advance for any help.
IF you have given me all the figures (a big IF):
Open 2 T accounts, one for DT and one for CT
Put in the figures you know:
On the credit side of DT we have brought down $8,400 and on the debit side of CT we have brought down 700
We also know the carry down figures:
On the debit side of DT, carried down to the credit side, we have $5,600 and on the debit side of CT, carried down to the credit side, we have $4,500
Included within that DT liability is the $1,200 for DT on the revaluation so transfer from DT credit side to RR debit side that $1,200
Now balance off the DT account – it needs an entry on the debit side of $4,000 to make that account balance and that $4,000 is credited to CT to complete that double entry
Now balance off the CT account and the missing figure to make that account balance is $1,200 which is credited in the CT account and debited to SoPoL
Is that any clearer?
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