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Hello John,
Could you explain under provison and over provision of tax, please?
does the government assign the fixed tax rate on profit or varies depending on profit?
if it doesn’t vary why our Company year-ends and tax year-ends rarely match?in study text they are recording it the same as a provision since we know the exact effective rate and date why they record it as a provision?
thank you in advance!!!
The tax is calculated as a % of the profit, but the state has special rules about how this is done (the rules are not relevant for Paper FA and are examined in Paper TX).
However the tax is not calculated until after the end of the year. When preparing the financial accounts the company has to estimate the tax that will have to be paid and show it as owing. However it is only an estimate – the amount will not be known for certain until later and so they may estimate too much or too little.
(This has nothing to do with year ends – company tax is calculated for the companies accounting period.)
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