December 2014-deferred tax — OpenTuition Forums

Ddarsh19977y ago

Hello Chris, Need your a help to tackle a deferred tax question(December 2014- KANDY). $'000 Deferred tax (note (iii)) 2,500 A provision of $2.4 million is required for current income tax on the profit of the year to 30 September 2014. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary differences relating to the information in note (ii), Kandy has further taxable temporary differences of $10 million as at 30 September 2014. 1. The working is as follows: Provision required at 30 September 2014 ((10,000 + 12,000) × 20%) 4,400 Provision at 1 October 2013 (2,500) ––––––– Movement in provision 1,900 Charge to revaluation of land and buildings (12,000 × 20%) (2,400) ––––––– Balance – credit to profit or loss (500) 2. Could you explain why $12,000 has been used to calculate the provision at 30 September 2014? Thanks.

P2-D2Tutor7y ago#1

Hi, If memory serves me right on the question, the $12,000 is in relation to a revaluation of PPE, so we need to include this amount in calculating the deferred tax liability at the reporting date, as the revaluation gives rise to additional, taxable temporary differences. Thanks

Ddarsh19977y ago#2

Hello Chris, Thank you for your answer. I've got the point. Thanks for the clarification. Could you explain how did they arrived at a balance of (500) which has been charged to P/L? -From what I've done, I did managed to obtain the movement of $1900. But it we have a tax charge of $2,400(12,000 × 20%) , then this amount should be charge to the revaluation reserve, that is, a decrease in revaluation reserve. - Therefore no amount should be charged to P/L due to the fact that the revaluation reserve has absorbed all the movement($2,400) - So, how come there is a balance of (500) charged to P/L? Thanking you in anticipation

P2-D2Tutor7y ago#3

Hi, If in doubt, use double entry bookkeeping! CR DT liability 1,900 DR Tax - revaluation (OCI) 2,400 What's the balancing figure? 500 Is it a debit or credit? credit Where does it go ? profit or loss The magical world of double entry bookkeeping, hey! Thanks

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