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Hi tutor,
Could you please explain the answer from Illustration 1: Darton Co in TEXT book?
In 20×8, Darton Co had taxable profits of $120,000. In the previous year, (20×7) income tax on profits had been estimated as $30,000. The income tax rate is 30%.
Calculate tax payable and the charge for 20×8 if the tax due on 20×7 profits was subsequently agreed with the tax authorities as:
(a) $35,000
(b) 25,000So, with (a), the tax charge (SPL) = 120,000 * 30% + (35,000 – 30,000) = 41,000
Tax payable (SFP) = 120,000 *30% = 36,000with (b), tax charge = 36,000 – (30,000 – 25,000) = 31,000
tax payable = 36,000But in the TEXT book, they use the same figure for tax charge and liability.
Specifically,
(a) Tax charge and liability: 41,000
(b) tax charge and liability: 31,000Thank you in advance.
Hi,
I believe that the calculations that you have done are correct. The tax liability on the SFP is the estimate of the current year tax charge, whilst the expense through profit or loss then adjusts this for any under/over provision from the prior year.
Thanks
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