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June 2010, Q2, note (v) and in its answer income Statement preparation:
Profit b/tax $28750
Inc. Tax
($12000 – (1400 ** ) – 1800 ) = $8800 –Pf for year = $19 950
** Why this $1400 figure subtracted. Why not it is added as I have done almost all past papers and in most of papers it is added.
Many Thanks
Put the figures into T accounts
Deferred tax:
debits: 1,800; 4,200
credits: 6,000Current tax:
debits: 12,000
credits: 1,400: 1,800Therefore 8,800 is the tax charge in the statement of profit or loss
You say “Why not it is added as I have done almost all past papers and in most of papers it is added”
Two points arise from this!
1) “Why not it is added as I have done almost all past papers ….”
This suggests that you are doing your workings without really understanding the whys and wherefores of what you’re doing 🙁
2) “and in most of papers it is added”
You’ve just said yourself that sometimes the figure is not added, it’s subtracted
The key is to note which side the figure is in the trial balance. Very often it’s on the debit side but, as in this case, it’s on the credit side
Prior to reading your response I figured out balances column on trial balance. For confirmation I doubled-check with your answer.
Many Thanks
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