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Jasper orange co’s trial balance at 31 December 20×3 shows a debit balance of $700,000 on current tax a/c and a credit balance of 8.4m on DT a/c. the directors have estimated the provision of income tax for the year at 4.5M and the required DT provision of 5.6M,1.2M of which relates to property revaluation.
what is the income tax amount recognized in jasper orange co’s SOPL for the year ended 31 December 20×3?
A) $1M B) $2.4M C) 1.2M(correct answer) D) 3.6M.
I got 3.6M using this entries;
CURRENT a/c; DR 700,000, DR 4.5M, CR 1.6M.
DT LIABILTY a/c DR 5.6M, DR 2.8M, CR 8.4M
OCI TAX a/c; CR 1.2M.
the movement of DT give rise to reduction in liability and expense hence a credit entry on current a/c. Where did i made wrong entry?
thanks.Hi,
The $1.2 million comes from a current tax expense of $5.2 million and a reduction in the deferred tax of $4.0 million.
The current tax comes from the opening debit of $0.7 million (under provision PY) and year-end estimate of $4.5 million, which when added together give $5.2 million.
The deferred tax opening balance of $8.4 million would normally reduce to $5.6 million but is reduced to $4.4 million (5.6 – 1.2) as $1.2 million is related to property and the movement on this goes through OCI. This therefore gives a reduction in the deferred tax of $4.0 million and a reduction in the charge through profit or loss.
Thanks
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