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Hello sir. hope u are well.
Fresco Co’s income tax calculation for the year ended 31 March 20X2 shows a tax refund of $2.4 million.
The balance on current tax in the trial balance represents the under/over provision of the tax liability for the
year ended 31 March 20X1. At 31 March 20X2, Fresco Co had taxable temporary differences of $12 million
(requiring a deferred tax liability). The income tax rate of Fresco Co is 25%.This concept of Tax refund is new to me, please can u give me the explanation of how it arises and how it affects the the income Tax expense and also where to record it in the SFP.
Thanks in advanceHi,
I’m well, thanks. Hope it’s the same for you!
A tax refund will mean that instead of there being a liability at the reporting date and a credit balance, there will be a receivable due from the tax authorities and a debit balance. To adjust for this we will just switch the side the closing balance appears on the T-account used to calculate the tax expense.
The closing figure will then appear as a current asset on the SFP.
Thanks
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