Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Deferred Taxation
- This topic has 4 replies, 3 voices, and was last updated 13 years ago by MikeLittle.
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- December 1, 2010 at 4:09 pm #46471
I am finding it really hard to understand deferred taxation. Is there any logical method that I can use to work out the figure that goes in the income statement, Current liabilities and long term liabilities?
December 2, 2010 at 11:39 am #72253AnonymousInactive- Topics: 0
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with deferred tax, it is actually simple, check the provision already in the trail balance. if Q says to increase the provision, current tax payable will increase if Q says opposite, it will reduce the tax taken to income statement. lso look out for under/over tax provision in the previous years. Hope this helps.
December 2, 2010 at 7:26 pm #72254The examiner will either say “The deferred tax provision to carry forward is …” or “temporary timing differences of say 30,000 ….and the tax rate is 25%” So, multiply differences ( 30,000 ) by tax rate = 7,500. Now, look at deferred tax provision brought forward and compare with this 7,500. If brought forward is less than our calculated figure ( here 7,500 ) the excess needs to be used to increase the tax charge in the income statement. In a question he will say also “The tax liability based on this year’s profits is estimated to be ….” ( say 18,000 )
Therefore, our tax CHARGE in this year’s income statement will be 18,000 + 7,500 = 25,500
One smalla djustment may be necessary – in the trial balance there may be a brought forward under / over provision ( or under / over payment ) from last year.
Now you need to apply your double entry knowledge! If the figure brought forward in the trial balance is a credit amount, say 1,000, this will REDUCE the tax charge of 25,500 leaving 24,500 to charge to the income statement. Obviously, if it’s a debit amount brought forward in the trial balance, this will INCREASE the tax charge in the income statement.
Try the mini-exercises at the back of the course notes – that’s why they’re there – to give you some practice on something which, almost certainly, WILL be in question 2.
December 3, 2010 at 5:01 pm #72255Hi Mike, makechina,
thanks very much for your help. I finally understand deferred taxation… and now that i understand it its sooooo easy! Using T accounts is how i understand it better.
🙂December 4, 2010 at 6:48 pm #72256You’re right – but not everyone likes T accounts – can you believe it?!!!
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