Current Tax Liability (IAS 12, Revision, Q3)

Dear All,

130800 is the answer given to the below revision problem by ACCA AI and endorsed by one of your tutors on a previous feed (September 2, 2023 at 8:59 am, Author: shivakuuu). The ACCA gives 137600 as solution. Which is the correct solution based on the problem text? What type of account is the income tax account? Why is the Estimated income tax for the year ended 31 December 20X2 137,600 DR (c/f) and then CR (b/f)? Thank you.

The problem:

The following information relating to taxation appears in the records of Stapley:

$
Balance on income tax account on 1 January 20X2 187,500
Income tax paid in 20X2 in full settlement for the year
ended 31 December 20X1 194,300
Estimated income tax for the year ended 31 December 20X2 137,600
What is the current tax liability to be included in Stapley’s statement of financial position as at 31 December 20X2?

$194,300
$144,400
$137,600
$130,800

The ACCA working solution:
Income tax
$
Cash 194,300
C/f 137,600
331,900
$
B/f 187,500
Expense for year 144,400
331,900
B/f 137,600

AI comment:

The provided working and the stated correct answer (C. $137,600) are incorrect based on the information given. The correct answer should be D. $130,800.
The error in the working is a misunderstanding of what the “Estimated income tax for the year ended 31 December 20X2” figure represents and how it should be used in the T-account.
Explanation of the Error
The working incorrectly places the estimated income tax of $137,600 as the closing balance (C/f) of the income tax account. This is wrong because the $137,600 is the tax expense for the year, which is a credit entry, not the final balance.