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Hello Mike
i am struggling to understand the treatment of income tax asset and tax refund due (that appears under current assets) in cash flow questions.
how shall we figure out the tax paid in the year when we have tax asset and tax refund due sitting in current assets?
i understand that normally we bring down the opening balance (of both deferred tax and current tax liabilities) on the credit side of the T Account and closing balance of the same on the debit side to figure out the tax actually paid in the year. but what is the treatment of income tax asset and tax refund due and where should we include them in T accounts and why?
I presume these are debit balances that we are talking about?
Then where do you expect to put them? If there is a tax refund due to the company, and the company has recorded this, then there must e a debit balance within current assets.
When preparing the T account to calculate the tax actually paid in the year, you’ll need to show the refund as an asset “below the line” on the debit side and therefore “above the line” on the credit side.
Try it and see. You’ll find that it works just as easy as pie
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