DEFERRED TAX AND CURRENT TAX

Open 2 T accounts, one for deferred tax, one for current tax

The question will give you an opening balance on the deferred tax and MAYBE an opening balance on current tax. If there is one for current tax (shown in the trial balance) BE VERY CAREFUL to put the opening balance on the correct debit or credit side – whichever side it is shown in the trial balance.

Next, the question will tell you information about the carry-forward figure in the deferred tax account – something like “there was a difference between the tax wriiten down value of the TNCA compared with their depreciated value” and will also give you a tax rate. Take the “difference, multiply by the tax rate, and then carry that figure forward in the deferred tax account – PROBABLY as a carry forward from debit above the line to credit below the line

There’s one small other matter to be careful about (deferred tax on this year’s revaluation of TNCA) but otherwise, you can now balance off the deferred tax account and double enter the “movement” to the current tax account.

OK so far?

Right, next, the question will say either “the tax charge for the year is $xxxx” or “the liability for this year’s current tax is $xxxx”

If it says “the tax charge is” then credit the current tax account with the figure which is given and the debit is to the Statement of Income . If it’s the second alternative – ” the liability ….” – then carry forward the given amount from above the line debit to below the line credit.

Now balance off the current tax account to find either the cary forward liability (alternative 1) or the tax charge (alternative 2)

And that should do it for you

🙂

You’re welcome 🙂