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I meant deferred consideration and not tax. Wonky after having sleepless nights…
Many thanks, Sir.
Thank you for your prompt reply.
Can I safely assume that, if such scenario appear on tomorrow’s paper, I can just treat it as a deferred tax?
Hi again,
I hope to understand your confusion better but I am guessing you might not have the idea of what are taxes/ deferred taxes and how they work. Either try google or if you have your F3 notes handy will help lots.
Anyway, to cut the pain short, I summarized as below:
SFP
NCL
Deferred tax (to record the balance carried forward)CL
Tax ( to estimated amount that is usually should be given in the question)For cash flow questions, you are given the SPorL and SPF. I have always been using only the Columnar method.
For calculating tax paid using Columnar method:
Balance b/f [deferred tax(NCL) + current tax(CL)] X
Tax expense (SPorL) X
Tax paid (bal. figure) X
Balance c/f [deferred tax (NCL) + current tax (CL) XHope that helps.
Hi,
I hope I can help you.
For calculating income tax and deferred tax for the income statements, first lay out (I name it my own little tax proforma):
Tax (SPorL):
Estimated provision for the year X
Previous year tax balance X
Deferred tax for the year XTotal = income tax expense (SPorL) X
Now, search through the question until you find the area on tax. The estimated provision should be given to you. Fill this figure onto the proforma above and not forgetting the easy mark, that is the SFP CL as Tax.
Next, look at your trial balance, if the balance is on debit, add the figure as positive integer onto the proforma. If the balance is a credit balance, add the figure as a negative integer.
Finally, the deferred tax. This can be a bit tricky as you will need to refer to the NCA if there is a need to include a gain on valuation to be taxed. I always count myself as lucky if the question says to ignore deferred tax on this part. I have so far practised on questions that either gave you the temporary difference directly, or an explicit increase or decrease of deferred tax.
The strategy is to determine if the deferred tax has increased or decreased. If temporary tax is given, multiply by the tax percentage and put that figure on SFP NCL as deferred tax. Then, use that amount to compare with the previous year deferred tax balance (from the trial balance and this always sit on the credit side). If the amount increases, it should be added to the proforma above and likewise, if it decreases it is deducted. If ever so unfortunate to have a gain on revaluation of PPE and question has explicitly ask you to account for it as a deferred tax, the amount increase or decrease on the deferred tax should be further deducted from this amount before being added/deducted to the proforma.
If we are lucky this December, an explicit amount of deferred tax is given as an increase or a decrease, just add or deduct from the proforma.
Total all three figures and transfer that amount to SPorL as income tax expense. Done!
That is not the conception of revaluation. The purpose of revaluation model is to ensure that the carrying amount of the asset does not differ materially from the fair value at the reporting date.
Let me show you my approach in calculating PPE
@ cost value: $800,000
Accumulated depr: ($560,000)
CV @ (date): 240,000Revaluation @ (date): $600,000
Gain on revaluation $360,000Depreciation charge for the year: 600,000/5= (120,000)
CV @ y-end: 480,000Note that besides looking for hints from the question on excess depreciation transfer, must also see if the gain on revaluation needed to be transfer to deferred tax. *I am reminding myself actually.
Hi,
I used to stuck on these as well, but I have figured out a way and hopes it is useful to you. Mike, if you are reading this, please comment if I am correct on this.
The $40,000 is the excess depreciation charge.
Depreciation charge before valuation = $80,000
Depreciation charge after valuation = $120,000Therefore, an increase of $40,000
The question will carry a sentence that sounds like “X co makes an annual transfer to retained profits to reflect the realisation of the revaluation reserve”. Highlight that sentence knowing that the excess depreciation is to be deducted from revaluation reserve and added to retained earnings (SOCIE).
Hi,
I think I understood by the question ‘incurred at the same amount each month up to 30 April 20X5’.
The financial year end is 30 June each year. The costs for project X is therefore being the 1 July 20X4 to 30 April 20X5 (i.e. 10 months)
EPS= earning / number of shares = 1750 /5000 = 35c
DEPS calculation for convertible loans:
DEPS = (Earnings + notional extra earnings) / (Number of shares + notional extra shares)
= [1750 + 1000 x 14% x (100% – 35%) + 2000 x 10% x (100%-35%)] /
[5000 + (1000/10 x 20) + ( 2000/5 x 3)]= 30.8c
Further explanation ( I might be wrong as I am also learning):
There are two convertibles in your questions but the calculation to the notional extra earnings and notional extra number of shares should be the same.
Notional extra earning is the interest earned from the convertible less tax. Hence the 1st set of convertible has a notional extra earning of 1000 x 14% x (100%-35%) = 91; and the 2nd set of convertible 2000 x 10% x (100%- 35%) = 130.
Notional extra shares is calculated based details given on the question. For this particular question, it says 2 shares per $10 for the 1st convertible loan and 3 shares per $5 for the second.
In its question (note ii), it says that ‘The surplus on the revaluation reserve related to the factory’. If you look at the SFP for both years, $1.6m has been taken out from revaluation reserves.
On other hand, calculation on RE balances (using columnar method) gives the following:
Bal b/f 850
SPorL 100
Amount transferred from RR (bal. fig) 1600
Bal c/f 2550Notice that the balancing figure above shows a positive figure, hence dividend payment is rule-out as all payments/ expenses should be of negative figure.
Hope this helps.