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Sir if can explain MCQ # 3 of Question 59 in F7 Bpp kit, My reservation is that whether only 1.6 will credit the income tax and the rest will credit Revaluation reserves in OCI. or the answer given is correct???
Hi,
I don’t have a copy of the F7 BPP Revision Kit. If you wish to copy and paste the question then I can help you solve it.
Thanks
Ok sir…right now, I am typing the question…please you may assist me now, I will be extremely obliged.
A company’s trial balance at 31 December 20X3 shows a debit balance of $700,000 on current tax and a
credit balance of $8,400,000 on deferred tax. The directors have estimated the provision for income tax for
the year at $4.5 million and the required deferred tax provision is $5.6 million, $1.2 million of which relates
to a property revaluation.
What is the profit or loss income tax charge for the year ended 31 December 20X3?
A $1 million
B $2.4 million
C $1.2 million
D $3.6 millionHi,
I believe that the answer is C $1.2 million.
The charge to income tax on current tax is $5.2 million, being the $4.5 million estimate for this year plus the under provision (debit balance in the trial balance) of $0.7 million.
The challenge lies with the movement on deferred tax due to the impact of the revaluation. Remember that any deferred tax on revaluations goes through other comprehensive income and not profit or loss. It is important therefore that when we calculate the movement on the deferred tax liability we remove the $1.2 million that relates to the revaluation.
This then means that we are comparing last year’s $8.4 million deferred tax provision to an adjusted figure of $4.4 million deferred tax provision ($5.6 million less $1.2 million), which gives rise to a credit of $4.0 million through profit or loss as the provision has been reduced.
If we net-off the $5.2 million debit (current tax) and $4.0 million credit (deferred tax movement) then we get the $1.2 million income tax charge for the year.
Hope this helps.
Thanks
Amazing Sir, Got it,
I was comparing the closing liability of $5.6m with $ 8.4m giving a debit of $2.8m. Further i did the below double entry:
Dr $ million Cr $ million
Deferred Tax liability 2.8
Revaluation reserves 1.2
Income Tax Expense 1.6Sir, But according to your explanation what will be the double entry?
The double entry may complicate it but it should be as follows:
CR Income tax (SPL) $4.0m
DR DT provision (with the full movement from $8.4m down to $5.6m) $2.8m
DR Income tax (SOCI) $1.2mThanks and keep up the hard work.
Hi!
I really have a difficulty in comprehending the calculation for deferred tax.
could you please help me to solve this question from kaplan?
Hudson has the following balances included on its trial balance at 30 June 20X4.
$
Taxation 4,000 Credit
Deferred taxation 12,000 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 $15,000.
The carrying amount of Hudson’s non-current assets exceeds the tax written-down value by
$30,000. 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 June 20X4?A $23,000
B $28,000
C $8,000
D $12,000
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