At 1 jan 2005 carbon co had a credit balance on its income tax account of $2300,000. For the year ended 31 Dec, carbon co estimated that its income tax liability to be $2400,000. During 2005 the income tax liability for the previous year was settled at $2350,000
What was the income tax charge in the statement of profit or loss for the year ended 31 dec 2005?
sir look here he had a credit balance of 2300,000 but then he paid off 2350,000 so that means $50,000 more..so it should be over provison and subtracted from the current tax liability but sir in the answer it is under provision and adding it? i am confused.. this is kaplaN question page 136 task 2 Carbon co
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Income tax charge
7y ago#1But it was not an over provision!!
They thought they owed 2,300,000 for the previous year. They actually had to pay 50,000 more and so that is treated as an extra cost this year (because it is too late to correct the previous year).
sir i am not getting it! Isn't it over provision? they paid 50,000 more so over provision is always subtracted. but the answer says under provision of 50,000..
sir the question says the liability was settled at 50,000..that means they paid more... so sir isnt it an over provision?
7y ago#4The provision is the amount they accrued - they accrued 2,300,000 at the end of this year.
The actual charge was higher and so they had under accrued (i.e. under provided).
sir i am still struggling with this question..look 2300,000 is the amount they didnt pay..the accrued amount..okay so this year the tax charge was 2400,000.. during the year they paid 2350,000
so how is it under-provision? u mean to say that they paid more but there estimation was less?
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