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June 08 Q2-Dexon, from condition v, difference base of 10m has 6m for revaluation reserves, should X20% =1.2m,debit to revaluation reserve. Then why condition ii’s revaluation surplus 6m (building’s)X20%=1.2m should credit to deferred tax. According to condition v’s way, why not debit to revaluation reserve?
Can anyone help? And also increase in investments 1m why not charge 20% tax? really doubt which type of revenue should be charged tax?
Deferred tax is tax on temporary differences.
Increase in temporary difference given in the question is 10m. tax rate 20%.
increase in Deferred tax = 20%*10m =2m
Normally, this will be debited to IS and credited to Deferred tax liability.
In this question, 1.2m relates to revaluation of property.there is revaluation gain of 6000, which will be credited to revaluation reserve. tax on this gain should be charged from this reserve. thus, debited to revaluation reserve 1.2m.
remaining 0.8m will be debited to IS.
deferred tax liability credited with 2m.Thanks. PPE revaluation reserves should be charged deferred tax, investments fair value increase is free from tax charge? I just see 1m directly credit to the end of year profit adjustment.
And thanks for the first question explanation. Now I understand
Dr R.R. 1.2m
IS 0.8m
Cr Deferred tax liability 2mu r welcome.
whether revaluation reserve should be charged tax or not will be given in the question.changes in fair value of investments are to be recognised in the IS, as the qn says, “The investments at fair value through profit and loss are……” Thus, increase in fair value of investment $1m is credited to IS.
information for tax calculations will be clearly given in the question.
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