Current Tax

Before I answer, please answer this question of mine to you ….. Why do you care?

Why learn it? Why bother? It is of absolutely no consequence to you whether it’s an over-provision, an under-provision, an over-payment, an under-payment, an anything-else matter ……..

It’s a debit balance! Open a T Account and write on the debit side
“b/f 2,000” or whatever the figure is that is given to you in the trial balance

Ok, here’s the explanation……

Imagine that last year’s estimated liability was $23,000. This is brought down on the credit side of the T Account with the narrative “b/f 23,000”

We negotiate with the taxman during the current year and we discover / agree that we need a payment of $24,100 to settle last year’s liability and that’s the amount we pay to the taxman (Dr Current Tax Account, Credit Cash) At the end of the year we balance off the Current Tax Account and carry down a balance from credit to debit of $1,100

And that’s the situation that faces you in the exam – in the list of balances there is a debit balance of $1,100 and the examiner kindly tells you that “the balance on the Current Tax Account represents an under- or over-provision of last year’s tax”

Now, is our $1,100 an under- or an over-provision?

Well, you can work that out now …….. but why bother? What do we care?

Ok?

Not at all silly! They’re only silly when you know the answer – until then, they’re a puzzle that needs to be solved