Deferred taxation question no 1

“I guess like most deferred taxation questions this question is difficult to understand .I need some explanation.”

You are SO wrong!

If you can get on top of this topic, it literally becomes a mindless routine as simple as breathing!

Open 2 T accounts, 1 for deferred tax and 1 for current tax

Put in the brought forward figures – beware that you get them on the correct side (debit or credit as per the question)

In Nedburg’s case, put in the carry forward amounts

Normally you would be asked for the charge to the statement of profit or loss but for Nedburg we are given this figure and instead we have to find the cash paid

The routine is pretty much the same for both

In the current tax account, put in the charge to the statement of profit or loss figure

Balance off the deferred tax account and double enter the balancing figure to the current tax account

Balance off the current tax account and the missing figure (normally the charge to the statement of profit or loss) is, in Nedburg’s case, the figure for cash paid

Here’s the detail:

In the deferred tax account

Debit side:

310 carried forward

Credit side

140 brought forward
170 balancing figure

In the current tax account

Debit side

170 double entered from the deferred tax account
130 carried forward

Credit side

160 brought forward
270 charge to the statement of profit or loss

Therefore the balancing figure on the debit side of the current account is 130

Follow these basic principles – it really is straight forward