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Hi Mike.
My workings for question 3 lead me to the same answer, $19M, but are different to yours. Here´s my calculation:
Deferred tax account: CR 2,600,000 + CR 400,000. I want a CR balance of 3,000,000 on this account since the total provision of 6,750,000 needs to be offset with the deferred tax of the revaluation (3,750,000), since the revaluation deferred tax will be debited in equity as happens in all revaluations.
Tax expense account: DT 19,400,000 + DT 400,000. CR 800,000…. Therefore answer is 19,000,000 is the tax expense shown on the Income Statement.
My working also led me to the correct answer, but is it a valid working? I could not understand why the total provision of deferred tax of 6,750,000 was DEBITED, in your answer, since by debiting it we are transforming it into an asset, and that´s not what we want, but we want it as a liability… Isn´t that correct?
Thanks for your help.
It’s debited because of basic double entry principles! Debit ABOVE the total lines with a narrative “Balance carried down” and credited BELOW the total lines with a narrative “Balance brought down”
Were you exempt from F3 by any chance?
As for different approaches, try your method on other questions and see if you continue to arrive at the correct answer
If you do, that’s fine – stick with the method that you are happy with
If not, scrap your method and get happy quickly with mine because my method always gives you the correct answer
Thank you Mike.
I was indeed exempt from F1, F2 and F3 because of having completed the AAT… and I did pinpoint after this post that my confusion was mainly originating by a double entry accounts issue.
I went all over AAT level 2 double entry principles to remember the T accounts layout with different years, balances carried down, balances b/f etc.
Thank you for your reply… refreshing double entry basics and your comment helped bring that previous knowledge back to memory!
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