current tax & deferred tax issues

Denis, if you look through the history of the F7 Ask the Tutor posts, there are at least 3 FULL responses to this question!

However, here we go again

Open two T accounts, Deferred Tax on the left of your page, Current Tax on the right

Put in the values from the trial balance taking great care to bring the balances down from last year on the correct side.

The question will often say something like “The balance on the Current Tax account represents an over / under provision of the tax liability for last year”

TOTALLY IGNORE THIS POINT – it makes absolutely no difference at all to you whether it’s an under or an over provision! For your information, if it’s a credit balance brought down from last year, that represents an over provision last year that was settled this year by an amount of cash lower than the provision. BUT YOU DON’T NEED TO KNOW THAT!

The question will then say that the directors have estimated the current tax liability / provision to be, say, $30,000. Above the total lines on the T account for Current Tax put in the debit side the narrative c/d and the amount of 30,000

Below the lines on the credit side of this same T account, put in the narrative b/d and the same figure of 30,000

The question will also say something like “the directors have determined that the provision for deferred tax should be (i) increased by 3,000 or (ii) increased to 14,000 or (iii) calculated on the basis that the temporary timing differences are 40m and the tax rate is 20% or (iv) the directors have decided that the deferred tax provision at the end of the year should be 26,500

Whatever way the information is given, you can then put in the Deferred Tax account, above the line on the debit side, the narrative c/d and the amount that needs to be carried forward into next year as the deferred tax provision.

Below the line on the credit side (these sides COULD be reversed if it’s a deferred tax asset, but that’s extremely rare in practice and even more rare in an exam) put in the narrative b/d and the same value

If a question states that, of the deferred tax movement, half of the deferred tax movement relates to the deferred tax on the revaluation of an asset, then the value of half of that movement should be credited to the deferred tax account and debited to the revaluation reserve

Having taken that amount if applicable (credit deferred tax, debit revaluation reserve), you can now balance off the deferred tax account and take the missing figure by way of double entry to the current tax account.

Now balance off the current tax account and take the missing figure to the PorL

There are 15 mini-exercises on this site for you to practice. Follow “home, ACCA, F7” and half way down that F7 page, there is a grey box called “additional appendix (?)”

Click on that grey box and page after page of mini-exercises appear. Get stuck into those over this coming weekend. They really are VERY important

Better?