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A trial balance shows a debit balance of 2.1 million brought forward on current tax and a credit balance of 5.4 million on deferred tax. The tax charge for the current year is estimated at 16.2 million and the carrying amounts of net assets are 13 million in excess of their tax base. The income tax rate is 30%.
I calculated the answer to be 14.7 but this is incorrect and I don’t understand why.
Also here the tax charge of 16.2 refers to the statement of profit or loss amount or is it the liability.
Also if it is the statement of profit or loss amount then is it for the current tax or is it for both current tax and deferred tax. Is this statement of profit or loss figure adjusted for tax.Hi,
You say your answer is 14.7 but what is the question asking? Is it asking for the tax charge for the year? If it is asking for the tax expense then you will need the current tax expense and the movement in the deferred tax balance.
So, to help with this then the 16.2 is the estimate of the tax for the year and is the liability at the end of the year. You can then use this to work out the current tax expense using the brought forward debit of 2.1.
You can then look at the movement in deferred tax with the brought forward balance of 5.4 and working out the carried forward balance from the information given.
I’d recommend that you watch the videos to help you understand the fundamental principles in calculating the tax figures required.
Thanks.
The question is asking what is the amount of income tax recognised in the statement of profit or loss for the year
The question says that the tax charge is 16.2 which suggests that it is the amount to be recognised in the statement of profit or loss. it does not say that tax liability is at 16.2 So how could it be assumed that it is the liability amount and not the tax expense amount.
Also the question does not say that the tax charge amount of 16.2 is for current tax or deferred tax. So is it to be assumed that it is for current tax and not deferred tax
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