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farhaanm- Topics: 141
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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 9,810can you explain the answer?
P2-D2- Topics: 4
- Replies: 4882
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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
farhaanm
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