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Hi Tutor,
For deferred tax working for part v, I got provision b/f at 1 Oct 2012 at -8000, and taxable differences of 7100 (24,000 plus revaluation gain of 4400 multiply by 25% tax) , and I got -900. What I don’t understand next is why do you still take the revaluation gain tax of 4400*25%=1100 and charged to other comprehensive income on revaluation gain. To me, it seems that we are taking taxing on revaluation gain and then later we took that out again. without the comprehensive income on revaluation gain, I get -900, and income tax expense should be $3.4m -$0.9m-$1.05m =$1.45m, after you took that $1.1m into consideration, the tax become much cheaper at only 0.35m, so whats the rationale of including the tax gain in the first place.
Second question is when do we take into consideration on revaluation tax surplus? whenever the question state deferred tax is applicable to the revaluation surplus? What if the revaluation turned out to be lesser than the carrying amount of the asset? is there a tax credit?
Second question first – yes, when the question tells you to ….. and, yes, there would be a tax credit (never seen it happen in ACCA exams!)
First question, I’ll deal with in a minute when I’ve looked at the question in the exam
The deferred tax brought forward is $8,000. We need to carry forward $6,000 + $1,100 from debit above the line to credit below the line
But not all of that movement is to go to current tax – the $1,100 is to be debited to Revaluation Reserve – so credit deferred tax and debit Reval Reserve
That leaves us with a balance on deferred tax account of $2,000 to be transferred to Current Tax account -debit deferred tax and credit current tax.
Carry down in the current tax account the provision for this year of $3,400 and that leaves us with a balance on current tax of 3,400 – 1,050 (b/f) – 2,000 (def tax) = 350 to be debited to statement of profit or loss
Is that better?
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