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Chapter 15 Income taxes (IAS 12) Question 1 from online test

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Chapter 15 Income taxes (IAS 12) Question 1 from online test

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 7, 2020 at 3:58 pm #570262
    farhaanm
    Participant
    • Topics: 159
    • Replies: 65
    • ☆☆☆

    hello
    The online question asks what amount should be charged to statement of profit or loss account? I calculated the movement and add it to the current tax. However this is not the answer. I think the real trouble is i am not understanding the answer given in the correction.
    Here is the question:
    Bight plc’s trial balance showed a debit
    balance of $2,450 on the Current Tax
    account and a credit balance of $3,210
    on the Deferred Tax account. The tax
    liability for the current year has been
    estimated at $8,470 and Bight plc’s net
    assets have a carrying value of $7,000
    greater than their tax base. The standard
    rate of corporate income tax is 30%.
    What amount will be shown as the tax
    charge in Bight plc’s statement of profit
    or loss account?
    $8,330
    $4,910
    $9,670
    $9,810
    Here is the answer:
    Incorrect
    deferred tax debits: 1,110; 2,100
    deferred tax credits: 3,210
    current tax debits: 2,450; 8,470
    current tax credits: 1,110
    therefore tax charge is 9,810

    can you explain the answer?

    May 10, 2020 at 3:46 pm #570497
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6493
    • ☆☆☆☆☆

    Hi,

    Firstly I’d calculate the tax expense in relation to the current tax, using a T-account. The opening balance is 2,450 on the debit side and the closing balance of 8,470 would appear on the debit side too, ready to be brought forward on the credit side next year. This gives an overall expense through profit or loss of 10,920 when the account is balanced off.

    Secondly we look at the movement on deferred tax. The opening balance is 3,210 and the closing balance 2,100, a reduction of 1,110. As it is a reduction in the balance this is then credited through profit or loss.

    Finally the credit of 1,110 reduces the expense of 10,920, giving the 9,810.

    Hope this makes it a bit easier to see.

    Thanks

  • Author
    Posts
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