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how to calculate provision required for deferred tax correctly

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › how to calculate provision required for deferred tax correctly

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 20, 2017 at 10:37 pm #373419
    sara
    Participant
    • Topics: 14
    • Replies: 17
    • ☆

    Hello Sir,
    How are you?
    I am unable to solve 1 question from Bpp for IAS 12 that is making me crazy now.Both are similar questions that includes revaluation and opening balances etc but the treatment to first question is totally different as compares to 2nd question.my answer is correct for the second question.so i have a problem with only first one.i will show you my answers below.=

    Q.trial balance at 31 December 20X3 shows
    dr $700,000 on current tax
    cr $8,400,000 on deferred tax
    Estimated the provision for income tax for the year at $4.5 million and the required deferred tax provision is $5.6 million, $1.2 million of which relates to a property revaluation.
    What is the profit or loss income tax charge for the year ended 31 December 20X3?
    Correct answer is 1.2 million

    My Answer:- under provision + current estimated tax = 4.5 + 0.7 = 5.2
    b/f 8.4 – 5.6 = 2.8 decrease in movement of deferred tax
    removing Revaluation deferred tax 2.8 – 1.2 = 1.6 Deferred tax
    5.2 + (1.6) = 3.6 million

    Q.The trial balance at 31 March 20X6 shows
    cr $800,000 on current tax
    cr $2.6 million on deferred tax.
    A property was revalued during the year giving rise to deferred tax of $3.75 million.
    This has been included in the deferred tax provision of $6.75 million at 31 March 20X6. The income tax charge for the year ended 31 March 20X6 is estimated at $19.4 million. What will be shown as the income tax charge in the statement of profit or loss at 31 March 20X6? $
    Correct answer is $ 19 million

    MY Answer – current estimated tax – over provision = 19.4 – 0.8 =18.6
    movement in D.T = b/f 2.6 – 6.75 c/f = 4.15 million increase
    remove Revaluation = 4.15 – 3.75 = 0.4 Deferred Tax
    18.6 + 0.4 = 19 million is the answer which is correct i am just showing bcoz i did the same thing above in first question as well

    I know i am doing something wrong and something that i have not still understood it well but i need your full guidance on above questions.

    Thank you in advance Sir.

    February 21, 2017 at 8:16 am #373452
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23318
    • ☆☆☆☆☆

    Your problem is here:

    b/f 8.4 – 5.6 = 2.8 decrease in movement of deferred tax
    removing Revaluation deferred tax 2.8 – 1.2 = 1.6 Deferred tax

    In this example (1), it’s a decrease in the deferred tax provision so when you “remove” the revaluation deferred tax, you should be ADDING it to the 2.8, not deducting it

    In example (2) you have:

    movement in D.T = b/f 2.6 – 6.75 c/f = 4.15 million increase
    remove Revaluation = 4.15 – 3.75 = 0.4 Deferred Tax

    In (2) we have an increase and you have DEDUCTED the revaluation deferred tax

    In (1) we have a decrease and again you have deducted the revaluation deferred tax whereas you should have ADDED it

    OK?

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  • The topic ‘how to calculate provision required for deferred tax correctly’ is closed to new replies.

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