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Hi Mike, thank you for the explanation. I couldn’t reply in the same thread so excuse me for creating another one.
Previous thread: https://opentuition.com/topic/deferred-tax-treatment-on-revaluation-surplus/#orb_custom_bb_new_reply_anchor
Just to be clear when you mentioned “Included within that DT liability is the $1,200 for DT on the revaluation so transfer from DT credit side to RR debit side that $1,200
Now balance off the DT account – it needs an entry on the debit side of $4,000 to make that account balance and that $4,000 is credited to CT to complete that double entry”Does that mean carried down for DT a/c is $4400 ($5600 – $1200) so as to create the $4000 CR entry on CT a/c?
No, the carry down is as given in the question – $5,600
The effect of transferring $1,200 is to increase the balancing figure (without that $1,200 credit entry the balancing figure would be ($8,400 – $5,600) $2,800)
Thus, that $2,800 balancing figure is increased to $4,000 and that amount is then transferred to the credit side of the CT account
The effect of that transfer is to reduce the tax charge in the SoPoL from what it would have been without the $4,000 transfer ($700 + $4,500) $5,200 and brings that tax charge down to $1,200
Better yet?
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