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Hi Mike,
B’s trial bal on 30/4/14 showed cr bal of 800 on current tax and 2600 on deferred tax. During the year property had been revalued giving rise to def. tax liablity of 3750 which was included in def. tax provision of 6750 on 30/4/15.
Liability of B’s income tax based on B’s profit for year was 19400.
what amount will be charged to B’s income statement as tax for yr end 30/4/15?
My question is, in the solution, why do we credited the Def. tax liability of 3750 in Def.tax account? Isn’t Def. tax liability supposed to be debited to def. tax account? And here it is already been debited as part of provision.
What does “Liability of B’s income tax based on B’s profit for year was 19400” mean? does it mean the current tax?
In practice questions, when you say “deferred tax account as per trial balance…” what do you mean by def. tax account? Is it pertaining to def. tax expenditure or def. tax liability?
‘why do we credited the Def. tax liability of 3750 in Def.tax account?’
It has already been included in the figure $6,750 but the tax on the revaluation gain should be debited to the revaluation reserve and that’s why it has been taken out of the deferred tax account
‘What does “Liability of B’s income tax based on B’s profit for year was 19400” mean? does it mean the current tax?’
Yes, this is the liability to carry forward in the Current Tax account from debit above the line to credit below the line
‘what do you mean by def. tax account?’
There is a line in the trial balance that says ‘Deferred Tax’ – sometimes it has a debit balance in the trial balance (very rarely) and sometimes it has a credit balance
Thanks. But this Credit Deferred tax figure from Trial balance goes to the income statement or to the SOFP? The income statement right?
If I am not wrong, the debit balance on DEFERRED TAX account means balance of deferred tax and thus must show as expense on the income statement. And if DEFERRED TAX LIABILITY account has a credit balance on the trial balance, means it is to be shown as a liability on the balance sheet right?
‘this Credit Deferred tax figure from Trial balance goes to the income statement or to the SOFP? The income statement right?’
NO! It goes to the credit side of the Deferred Tax account and from there (and the Current Tax account) you can work out the figure that will go to the statement of profit or loss
Have you worked through the solutions to the tax mini exercises at the end of the course notes?
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