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Sir, pls shortly explain to me why we have to deduct last year deferred tax provision from this year deferred tax required provision .
Trial bal was credited with 4million and provision required for this year end was 15m * 25% which gave us 3,750 . This 15m was an entity’s net asset tax base which was less than the carrying amounts and the tax rate was 25%.Ultimately, we have 3750 – 4,000 = (250) credit reduction in provision to Income statemtent .
Pls it’s just an exract from exam kit that I am practicing . Could you pls explain to me ?
In a Deferred Tax T Account we have a credit balance of $4,000 brought forward
In that same account, on the debit side above the line, we have the amount of $3,750 with a narrative “Carried forward” and, on the credit side, below the line, we have that same amount $3,750 with the narrative of “Brought forward”
Now look at that T account – above the total lines we have a debit of $3,750 and a credit of $4,000
So we need a figure of $250 on the debit side to make the debits balance with the credits
Therefore debit the figure of $250 in the Deferred Tax T Account and credit that same amount to the Current Tax T Account
If an exam kit wishes to say that it’s “$3,750 – $4,000” with no explanation … fine. You can always direct your confusion to me and I’ll try to sort it out for you
OK?
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