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Hi Sir, I’m hoping to seek clarification regarding tax liabilities and charge.
I came across a question : trial balance at 31 dec 2018 included cr balance of $3400 on tax liability account, having already settled the tax liability 31 dec 2017. it was estimated that tax on profit for year ended 31 dec 2018 is $67,900.since there is a credit balance that means an overprovision right?
to decrease this the journal entry will then be to debit tax liability and credit tax charge.however the answer states that only tax charge in stm of profit and loss is decreased but tax liability stays the same.
May I know the reason for this?
some website states that payable is the full amount of estimation of that year only which is confusing to me as all balance sheet accounts is brought forward to the next period. shouldn’t we bring down the liabilities for tax since there was an overprovision?thank you ?
The amount showing as owing in the SOFP as at the 31 December 2018 has to be always the estimate of the tax charge for the year ended 31 December 2018.
Any under or over provision from the previous year adjusts the tax expense showing in the SOPL for the year ended 31 December 2018.
(Any websites that say different are simply wrong 🙂 )
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