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Holmes has the following balances included on its trial balance at 30 June 20X4:
$
Taxation 7,000 Credit
Deferred taxation 16,000 Credit
The taxation balance relates to an overprovision from 30 June 20X3.
At 30 June 20X4, the directors estimate that the provision necessary for taxation on current
year profits is $12,000. The balance on the deferred tax account needs to be increased to
$23,000, which includes the impact of the increase in property valuation below.
During the year Holmes revalued its property for the first time, resulting in a gain of $10,000
The rate of tax is 30%.
What is the charge for taxation that will appear in the statement of profit or loss for the
year to 30 Juneplease help me for solution of this question
understandable and detailed explanation is very useful for me
thanks!
Hi,
I can help you with what you do not understand but I’m not here to just write out the answer for you as you request. You must attempt the question first as it is better for your learning that way.
Attempt the question, following what we’ve said in the notes/lectures (year-end estimate, under/over provision, movement on deferred tax) and then I can help you with what you do not understand. You will likely find that you understand more than you think and it will only be the revaluation aspect that is causing you the trouble.
Let me know how you get on and I will gladly help you out.
Thanks
Hi,
I’m seeking clarification on how the revaluation process affects the calculation of deferred tax. Can you please explain this to me? Additionally, I’m confused about the significance of the figure of 16,000 in relation to the stated deferred tax balance brought down, which is 23,000. Could you provide clarification on this matter?
Thank you
Hi,
If we have a revaluation of PPE then the gain will have gone through OCI and so the deferred tax on the gain will also go through OCI. The deferred tax arises easier the tax base is not changed but the CV will be higher as a result of the revaluation.
When looking at the overall movement on deferred tax, so using the opening balances, then we need to look at how much of the movement goes though profit or loss and how much through OCI.
Thanks
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