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Hello Mike,
The exam question shows a debit of current tax of 3200 (left site of TB) and a cr of 4600 for def. tax liab. (Right site of TB). The question is. The balance on current tax represents the under/over provision of the tax liability for the year ended 31 March
2013. A provision of $28 million is required for current tax for the year ended 31 March 2014 and at this date the deferred tax liability was assessed at $8·3 million.My answer is:
Current tax refund 3200 minus 28000,gives current tax expense 24800.
Def. tax 4600- 8300, gives expense relating def tax liab 3700.
Total tax expense in IS 28500 (3700 from def tax + 24800 from current tax).Acca answer is: 28000+3200+3700= 34900
They take the current tax as an underprovision (liab.) why? Where is my mistake?Thanks
AThe liability brought down from last year was, say, 30,000 and we settled it by a payment of 33,200
At the end of the year, we shall have a debit balance on the current tax account to be shown in the trial balance. It results from an under provision from last year.
But why do you need to know? It’s totally irrelevant to you whether it’s an over- or and under-provision
Just make sure that you bring it down according to the question as a debit or as a credit
Mike,
When current tax is in debit side, it’s definitely under provision. Am I right?
Why do you want to know?
Why WOULD you want to know?
It’s irrelevant!
But, in order to answer your question, yes, it’s an under- provision from the previous year
Happier?
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