[Mdots]

Sir Little, one more thing: When we have a Dr I/S Charge on Current Tax account, just like Q3 We have got Dr 7000 as I/S Charge on CT, how do we interpret it? Does it mean the govt owes us? (I’m taking a wild guess)

Also after we shift the balance from DT to CT, how can we interpret the Dr or the Cr? (e.g. Q5 above: Shift the DT A/c Dr 2800 as CT A/c Cr 2800. So what does the Cr in the CT means?)

Thanks a ton in advance. I’m trying out all the DT parts from past papers and I am happy to say that I am not confused on DT anymore 😀 Thanks to you!!!

[Mdots]

Oooook.
I have 2 Qs:
1) What is the impact on I/S if we get a Dr I/S on CT. What is the effect if it is Cr charge to income statement?
2) Why do we deduct revaluation from taxable difference? What is the logic? Isn’t revalued amount going to be tax-ed as well? :S
This is what I did. I can’t understand the solution at the back of the notes so I don’t know if my answers are correct. I am going to do my best to tell you what I computed. Here it goes:

Q1: In CT A/c we have Dr: DT 1600 and c/d 28300 so that makes Cr: I/S 29,900 (charge to income statement)

Q2:
Step 1: Open DT and CT A/c. I have put Cr DT: 11,200 and Cr CT: 400 (as per Q)
Step 2: CT A/c the I have put Dr c/d 18700
Step 3: Taxable diff $40m x 25% = $ 10m. I have put DT A/c DR: c/d 10000
Step 4: Balance off DT a/c. It comes off as Dr 1200. (Cr 11200-Dr 10000)
Step 5: Shift the DT A/c Dr 1200 as CT A/c Cr 1200.
Step 6: Balance off to get : DR I/S 17100 (charge to income statement)

Q3:

Step 1: Open DT and CT A/c. I have put Cr DT: 19,200 (as per Q)
Step 2: Taxable diff $10m- $6m= $4m. $ 4m x 20% = $ 800,000 . I have put DT A/c DR: c/d 800
Step 3: CT A/c the I have put Dr c/d 11,400
Step 4: Balance off DT a/c. It comes off as Dr 18,400. (Cr 19200-Dr 800)
Step 5: Shift the DT A/c Dr 18400 as CT A/c Cr 18400.
Step 6: Balance off to get : DR I/S 7000 (charge to income statement)

Q4:
Step 1: Open DT and CT A/c. I have put Cr DT: 5800 (as per Q)
Step 2: CT A/c the I have put Dr c/d 11,400
Step 3: DT A/c I have put Dr c/d 6000.
Step 4: Balance off DT a/c. It comes off as Cr 200. (Cr 5800-Dr 6000)
Step 5: Shift the DT A/c Cr 200 as CT A/c Dr 200.
Step 6: Balance off to get : DR I/S 11600 (charge to income statement)

Q5:

Step 1: Open DT and CT A/c. I have put Cr DT: 8400 and Cr CT: 700 (as per Q)
Step 2: CT A/c the I have put Dr c/d 4500
Step 3: I have put DT A/c Dr: c/d 5600
Step 4: Balance off DT a/c. It comes off as Dr 2800. (Cr 8400-Dr 5400)
Step 5: Shift the DT A/c Dr 2800 as CT A/c Cr 2800.
Step 6: Balance off to get : CR I/S 1000 (charge to income statement)

Pheewwwwwwww…..

[Mdots]

Thank you very much for your reply, Sir.

Sir, is it possible that you can just .. probably write down the process of treating this monster. On how to tackle it. Videos are awesome but I really need help in this area, Sir.

I will try my level best to be clearer. This is the exact thing I go through while going through the questions.

Mini excercises, Opentuition course notes:

Q1: Trial balance at 31.3.2007

Def tax liability: $12,500

The provision for income tax for the year to 31.3.2007 has been estimated at $ 28.3m. The def tax provision at 31.3.2007 is to be adjusted to a credit balance of $14.1m.

My solution:
1. Open the Def tax a/c and I have put 12,700 in the Cr.

2. Then I have put $ 14,100 in Cr.

3. Open up Current Tax a.c and I have put $28,300 in the Cr.

4. Stare blankly at the page thinking what to do next. Then panic.

Q3: 31.3.2009

Def Tax liability at April 1, 2008 $ 19200

Temporary taxable diff increased by $10m of which $6m related to the revaluation of the property. The def tax relating to he remainder of the increase in the temporary diff should be taken to the income statement. Income tax rate: 20%

Estimated provision is $11.4 m. Figures do not include the provison for income tax on the profit for the yr 31.3.2009

My solution:
1. Open Def Tax a/c. I have put b/d $ 19200

2. Take out revaluation (why do we do that, by the way?) $10m- $6m= $4m
So $4m x 20% = $800,000

3. I have put c/d $ 800 in Def tax a/c.

4. Now what to do? Provision in Current Tax a.c ??

Really sorry to bug you in this way, but I am completely at loss in tackling some topics in F7. It is making my IQ shrink at a rate of 0.5% everyday with increase in panic by 2%.

Many many thanks in advance, Sir.

[Mdots]

First of all Sir Mike, thanks a ton for your sincere and dedicated efforts. Your lectures are really helpful.

Sir I am struggling at Deferred Tax. I saw your illustration on Revison Kit Q Fresco (June 2012) and tried to attempt mini exercises. I could only do Q2. (I was surprised I got the answer!)
Q1: Def Tax a/c: I put Cr b/d 12500 and then Cr c/d 14100
C tax: I put Dr c/d 28300

Q3: D tax : I put Cr b/d 19200 and Dr c/d 800. I did $10m-$6m (the revaluation)= $ 4m then $4m x 20%=800
I have no idea what to do with provison…how to deal with it.

I have tried to follow you on the Revision kit Q and also the Deferred Tax lecture but I seem of have lost a lot of grey matter on this. Seems like I can’t get a hang of the concept. I think I am also making a mistake on what to put where (e.g. Fresco. Tax refund is an asset of $2400. I was putting it Dr $2400 above the line in T/accounts. I need help. Its frustrating

Many thanks in advance.

[Author]

Posts