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Hi Mr John
The question is :
The income tax of Outflow :
On S.O.F.P
In 20X1 – $5000.000 and 20X2- Nil– Outflow estimated that it would receive a tax refund of $500.000 as a result of making a loss before tax for the year ended 30 April 20×2 .
– On SOPL
Loss before tax (4.300)
Income tax 500
Loss for the year (3.800)
Other comprehensive income
Revaluation surplus on PP&E 2000
Total comprehensive for the year (1.800)1- How do we solve with a tax refund when calculate income tax on cash flow ? I have workings , but they don’t show it on T-ACCOUNT so it’s hard for me to catch it .
2- when there is a” loss before tax ” . Should we prepare cash flow exactly like when it’s ” profit before tax? Should I pay attention on anything when it’s a loss ?
Many ThanksHave you copied out the entire question, because on what you have written there should be 500 appearing as a receivable on the SOFP for 20X2?
If it is a past exam question or a question from the BPP Revision Kit, then please tell me which question.
Sorry for my unprofessional extraction . The whole question is
STATEMENT OF PROFIT OR LOSS
Revenue 34.760
COS (33.560)
Gross profit 1.200
Distribution and admin expense (4.500)
Interest payable (1.000)
Loss before tax ( 4.300)
Income tax 500
Loss for the year (3.800)
Other comprehensive income :
Revaluation surplus 2000
Total comprehensive income (1.800)STAMENT OF FINANCIAL POSITION
Asset
20X2 20X1
NCA
PP&E 26.000 245.000PP&E accumulated ( 15.000) (145.000)
110.0000 100.000Current asset
Inventories 30.000 33.000
Receivable 48.750 52.000
Income tax recoverable 500 NilTotal asset 189.250 185.0000
EQUITY & LIABILITY
Equity share capital 44.000 40.000
Share premium 5.0000 4.000
Revaluation reserve 22.000 20.000
R/E 72.450 77.250Total equity 143.450 141.250
Non current liability
Long term bank Loan 15.500 8.000Current liability
Bank overdraft 4.0000 3.250Trade payble 26.300 27.500
Income tax Nnil 5000
Total equity and liability 189.250 185.000The following information is relevant to the financial statement of Outflow during the year ended 30 April 20X2
a) Outflow scrapped numerous items of plant and equipment during the year . The items scrapped were originally purchased for 7.000.000 and they had a Carrying amount of $1000.0000 at the date of disposal . The gain or loss on scrapping is included within COS
b) Outflow made s depreciation charge for the year of 11.000.000 and several buildings had been revalued during the year
c) Outflow estimated that it would receive a tax refund of 500.000 as a result of making a loss before tax for the year ended 30 April 20×2
Prepare stamen of cash flow using the indirect method …My question are :
1- How do we solve with a tax refund when calculate income tax on cash flow ? I have workings , but they don’t show it on T-ACCOUNT so it’s hard for me to catch it .2- In the workings , its shown that is a loss on disposal 1000 . I has some struggles to understand it . why is it a loss on disposal ? based on the information is given . they just show a CV at the disposal is $ 1000 , but it doesn’t mean that will be loss , maybe the value of selling is higher than its carrying amount ?
3- They said “The gain or loss on scrapping is included within COS ” ., so I should treat it as an expense ?
4- when there is a” loss before tax ” . Should we prepare cash flow exactly like when it’s ” profit before tax? Should I pay attention on anything when it’s a loss ?
Sorry for asking so many questions . Thank you for helping me out
1. You will not be asked for t-accounts in the exam, and preparing a t-account simply wastes time. They owed tax of 5,000 at the end of last year and they don’t owe any tax at the end of this year. Therefore they must have paid 5,000 and that is the cash outflow. (The tax receivable at the end of the year is the tax refund they are going to get, but they haven’t received it yet and so it is not relevant for the cash flow statement).
2. The questions says that the items of plant and equipment were scrapped. Therefore there were no sale proceeds and therefore the loss on sale is the carrying value.
3. You treat it in the way we always treat a profit or loss on sale. Because it is a loss on sale, it will be added back to the profit when calculating the cash received from operating activities.
4. A loss is simply a negative profit. Everything is as normal except for the starting figure being negative.
Do that you cannot be asked to prepare a full statement of cash flows in the exam, although you can be asked for any extracts from a full statement.
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