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- March 20, 2018 at 10:28 am #443095
Hi sir
Have a query on this ias 12 standard
Hoping that my theory is conrrect(income tax expense-income tax payable= deferred tax), the question now is that the taxes will arise due to diff in the p&l especially the profits.
Now why does deferred tax arise in some assets as well coz we compare the CA vs TAX BASE right?
In short if assets doesnt affect our pnl why taxes?March 20, 2018 at 1:50 pm #443115Open 2 T accounts
Piut in the balances that are given in the question – typically the opening balances and you’ll find them in the trial balance (beware the debits and credits – if it’s a debit figure in the trial balance, it’s a debit figure in the T account with a narrative “brought forward”)
Put in the carry forward figure of “the directors estimated the current tax liability to be $xxxx” – it goes in the debit side of the T account with a narrative of “carried forward”
(If the question tells you the “charge for the year for current taxation” that’s the figure that appears in the statement of profit or loss as an expense and appears in the current tax T account on the credit side – but that would be unusual … normally you would have to calculate the tax charge for the year so follow these ensuing instructions
A question will often say “the carrying value of the assets exceeds their tax written down value by $XXX” and will somewhere tell you the current rate of taxation
Apply that rate to the timing differences (carrying value – tax written down value) and you have the carry forward liability for the deferred tax T account (show on the debit side with a narrative “carried forward”)
Balance off the deferred tax T account (there may be an entry to put in where you need to credit the deferred tax T account and debit the Revaluation Reserve, but not always!) and double enter that balancing figure to the Current Tax T account
Balance off the Current Tax T account and that’s the tax charge for the year
Try that and particularly try the mini-exercises that you’ll find towards the end of the F7 course notes
OK?
March 20, 2018 at 2:44 pm #443120Yup fine ill try that thanks
March 20, 2018 at 3:06 pm #443122You’re welcome
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