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First of all Sir Mike, thanks a ton for your sincere and dedicated efforts. Your lectures are really helpful.
Sir I am struggling at Deferred Tax. I saw your illustration on Revison Kit Q Fresco (June 2012) and tried to attempt mini exercises. I could only do Q2. (I was surprised I got the answer!)
Q1: Def Tax a/c: I put Cr b/d 12500 and then Cr c/d 14100
C tax: I put Dr c/d 28300Q3: D tax : I put Cr b/d 19200 and Dr c/d 800. I did $10m-$6m (the revaluation)= $ 4m then $4m x 20%=800
I have no idea what to do with provison…how to deal with it.I have tried to follow you on the Revision kit Q and also the Deferred Tax lecture but I seem of have lost a lot of grey matter on this. Seems like I can’t get a hang of the concept. I think I am also making a mistake on what to put where (e.g. Fresco. Tax refund is an asset of $2400. I was putting it Dr $2400 above the line in T/accounts. I need help. Its frustrating
Please help me out in this. Many thanks in advance.
Hmmm. I shall be re-recording the lecture again this season but I think it will probably be too late for the June session – Admin will probably not have the chance to upload it.
It’s a problem area – you need to be very careful in your reading of the problem. Sometimes the question talks about a “charge”, sometimes a “balance” and then the balance may be brought forward or carried forward. Sometimes you’re given the figure, other times you need to calculate it and others times again it’s merely expressed as an increase. Sometimes it’s an increase “by” whereas others it’s and increase”to”
When you say in your post “I have put cr brought down” or “dr carried down” it would be clearer for me if you had posted ( for example ) “I have carried down from credit to debit the sum of $xxx” – in that way I can be sure that you have your double entries correct.
Thank you very much for your reply, Sir.
Sir, is it possible that you can just .. probably write down the process of treating this monster. On how to tackle it. Videos are awesome but I really need help in this area, Sir.
I will try my level best to be clearer. This is the exact thing I go through while going through the questions.
Mini excercises, Opentuition course notes:
Q1: Trial balance at 31.3.2007
Def tax liability: $12,500
The provision for income tax for the year to 31.3.2007 has been estimated at $ 28.3m. The def tax provision at 31.3.2007 is to be adjusted to a credit balance of $14.1m.
My solution:
1. Open the Def tax a/c and I have put 12,700 in the Cr.2. Then I have put $ 14,100 in Cr.
3. Open up Current Tax a.c and I have put $28,300 in the Cr.
4. Stare blankly at the page thinking what to do next. Then panic.
Q3: 31.3.2009
Def Tax liability at April 1, 2008 $ 19200
Temporary taxable diff increased by $10m of which $6m related to the revaluation of the property. The def tax relating to he remainder of the increase in the temporary diff should be taken to the income statement. Income tax rate: 20%
Estimated provision is $11.4 m. Figures do not include the provison for income tax on the profit for the yr 31.3.2009
My solution:
1. Open Def Tax a/c. I have put b/d $ 192002. Take out revaluation (why do we do that, by the way?) $10m- $6m= $4m
So $4m x 20% = $800,0003. I have put c/d $ 800 in Def tax a/c.
4. Now what to do? Provision in Current Tax a.c ??
Really sorry to bug you in this way, but I am completely at loss in tackling some topics in F7. It is making my IQ shrink at a rate of 0.5% everyday with increase in panic by 2%.
Many many thanks in advance, Sir.
Def tax liability: $12,500
The provision for income tax for the year to 31.3.2007 has been estimated at $ 28.3m. The def tax provision at 31.3.2007 is to be adjusted to a credit balance of $14.1mok, question 1.
Open DT and CT accounts .In DT A/c bring down a balance on the credit side of 12,500Carry down from debit to credit in the DT A/c 14,100
Enter into the CT A/c a carry down from debit above the line to credit below the line an amount of 28,300.
Balance off the DT A/c ….so in the DT A/c enter a credit entry of 1,600 and take the debit to the CT A/c
So CT A/c now looks like a debit amount of 28,300 and a debit amount of 1,600. Balance off the DT A/c at totals of 29,900 and take the missing credit figure ( needed to make it balance ) to Statement of Income as the tax CHARGE for the year.
Now try the next two for yourself! And let me know if it’s any better
Oooook.
I have 2 Qs:
1) What is the impact on I/S if we get a Dr I/S on CT. What is the effect if it is Cr charge to income statement?
2) Why do we deduct revaluation from taxable difference? What is the logic? Isn’t revalued amount going to be tax-ed as well? :S
This is what I did. I can’t understand the solution at the back of the notes so I don’t know if my answers are correct. I am going to do my best to tell you what I computed. Here it goes:Q1: In CT A/c we have Dr: DT 1600 and c/d 28300 so that makes Cr: I/S 29,900 (charge to income statement)
Q2:
Step 1: Open DT and CT A/c. I have put Cr DT: 11,200 and Cr CT: 400 (as per Q)
Step 2: CT A/c the I have put Dr c/d 18700
Step 3: Taxable diff $40m x 25% = $ 10m. I have put DT A/c DR: c/d 10000
Step 4: Balance off DT a/c. It comes off as Dr 1200. (Cr 11200-Dr 10000)
Step 5: Shift the DT A/c Dr 1200 as CT A/c Cr 1200.
Step 6: Balance off to get : DR I/S 17100 (charge to income statement)Q3:
Step 1: Open DT and CT A/c. I have put Cr DT: 19,200 (as per Q)
Step 2: Taxable diff $10m- $6m= $4m. $ 4m x 20% = $ 800,000 . I have put DT A/c DR: c/d 800
Step 3: CT A/c the I have put Dr c/d 11,400
Step 4: Balance off DT a/c. It comes off as Dr 18,400. (Cr 19200-Dr 800)
Step 5: Shift the DT A/c Dr 18400 as CT A/c Cr 18400.
Step 6: Balance off to get : DR I/S 7000 (charge to income statement)Q4:
Step 1: Open DT and CT A/c. I have put Cr DT: 5800 (as per Q)
Step 2: CT A/c the I have put Dr c/d 11,400
Step 3: DT A/c I have put Dr c/d 6000.
Step 4: Balance off DT a/c. It comes off as Cr 200. (Cr 5800-Dr 6000)
Step 5: Shift the DT A/c Cr 200 as CT A/c Dr 200.
Step 6: Balance off to get : DR I/S 11600 (charge to income statement)Q5:
Step 1: Open DT and CT A/c. I have put Cr DT: 8400 and Cr CT: 700 (as per Q)
Step 2: CT A/c the I have put Dr c/d 4500
Step 3: I have put DT A/c Dr: c/d 5600
Step 4: Balance off DT a/c. It comes off as Dr 2800. (Cr 8400-Dr 5400)
Step 5: Shift the DT A/c Dr 2800 as CT A/c Cr 2800.
Step 6: Balance off to get : CR I/S 1000 (charge to income statement)Pheewwwwwwww…..
Sir Little, one more thing: When we have a Dr I/S Charge on Current Tax account, just like Q3 We have got Dr 7000 as I/S Charge on CT, how do we interpret it? Does it mean the govt owes us? (I’m taking a wild guess)
Also after we shift the balance from DT to CT, how can we interpret the Dr or the Cr? (e.g. Q5 above: Shift the DT A/c Dr 2800 as CT A/c Cr 2800. So what does the Cr in the CT means?)
Thanks a ton in advance. I’m trying out all the DT parts from past papers and I am happy to say that I am not confused on DT anymore 😀 Thanks to you!!!
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