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Dear sir,
I was practicing Kaplan example question regarding IAS 1. It has provided some data and in this data there is income tax (remaining balance from previous year) of 10. The income tax for current year is 135.
In solution in SOPL, they have charged 135 + 10 as a total tax. In SOFP they have taken only 135 as current liability.
My question is that why they have included 135 + 10 in the current year’s tax. Don’t you think that previous year’s tax expense would have already been charged to previous year SOPL? So in this we are double charging to SOPL if we take this 10 in current year’s tax?
Hi,
Remember how the tax figures in the accounts work. We record the estimate at the year end in the SFP as a current liability and then in the following financial year we pay the tax authorities the actual amount, which might be more of less than the estimate at the year-end.
We don not adjust the prior year figures for any differences between what is paid and what was estimated. The difference is accounted for in the year the payment is made.
In this scenario it looks like the estimate last year was less than what was paid as the 10 is being added to the 135 estimate of the current year. So, we could have estimated 90 last year and then paid 100 this year, giving the additional 10 to be charged (an underprovision) in the current year.
Thanks
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