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Sir, May I ask for clarification? It is Moby Qn 2 Dec 13 regarding the computation of deferred tax and income tax expense.
Qn Given “Deferred Tax of $8,000 in (Cr) side of trail balance (as at 30 Sep 13). Adjustment required was “At 30 Sep 13, the tax base of Moby’s net assets was $24 million less than their carrying amount. This does not include the effect of revaluation of 4,400. The income tax rate of Moby is 25%.”
Ans (Given in ACCA report)
____Dr_____ _______Cr______
Provision bf at 1 Oct 12 (8,000)
Provision c/f required at 30 Sep 13
Taxable Difference: Given per Qn 24,000
On Revaluation 4,400
28,400 x 25% 7,100
—————
(900)
Charged to other comprehensive income on revaluation gain (4,400×25%) (1,100)Credit to P&L 2,000
I do understand that the revaluation surplus of 4400 will create deferred liability at 25% tax rate so it is added to the required provision for deferred tax. I just can’t comprehend why we added back the 1100 (4400 x 25%) to the decrease in deferred tax liability?
On previous cases I encountered only the recognition of deferred tax from the revaluation gain but no adding back of same amount to the difference in deferred tax liability.
Hi,
You are given the temporary differences information regarding the deferred tax balance, where it says that they are $24 million. This difference does not include the revaluation, so if we add the revaluation to the carrying value the temporary difference will increase to $28.4 million, as the tax base is not altered and it is just the carrying value that is increased.
The deferred tax position is therefore the $7.1 million (25% x $28.4 million) and there is a reduction in the deferred tax liability of $0.9 million given that it was an $8 million liability at the start of the year.
To get the correct numbers to profit or loss and other comprehensive income (and hopefully to clear up your query as to why we add back the number) then I’d use debits and credits as follows:
DR DT liability $0.9 million (reduction in deferred tax)
DR OCI $1.1 million (the impact of the revaluation goes through OCI to match the gain that has gone through OCI, so 25% x $4.4 million revaluation gain)
CR SPL $2.0 million (balancing figure)I hope this clears it up for you and apologies for the delay in getting back, it’s been a busy old week.
Thanks
Hi, could someone please let me know how do we calculate in SOCIE the share issue:
Per TB: 20 cents each = 45,800 Share issue was made 31.12.X2 of 4M shares at 1 dollar per share.
So in my SOCIE I now have:
Balance : 45,000
Share issue: 800I am having a really stupid moment now and don’t understand how do I calculate this split?
Please can you help me?
Thanks!
Hi,
I might be having a really stupid moment too, but I cannot see a share issue in the question called Moby from the December 2013 exam. Could you please kindly highlight where the question is? If you do then I’ll gladly help.
Thanks
Thank you. Got it!
@P2-D2 said:
Hi,You are given the temporary differences information regarding the deferred tax balance, where it says that they are $24 million. This difference does not include the revaluation, so if we add the revaluation to the carrying value the temporary difference will increase to $28.4 million, as the tax base is not altered and it is just the carrying value that is increased.
The deferred tax position is therefore the $7.1 million (25% x $28.4 million) and there is a reduction in the deferred tax liability of $0.9 million given that it was an $8 million liability at the start of the year.
To get the correct numbers to profit or loss and other comprehensive income (and hopefully to clear up your query as to why we add back the number) then I’d use debits and credits as follows:
DR DT liability $0.9 million (reduction in deferred tax)
DR OCI $1.1 million (the impact of the revaluation goes through OCI to match the gain that has gone through OCI, so 25% x $4.4 million revaluation gain)
CR SPL $2.0 million (balancing figure)I hope this clears it up for you and apologies for the delay in getting back, it’s been a busy old week.
Thanks
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