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Astral Co has a debit balance relating income tax of $500 included in its trial balance extracted on 30 June 20×4. Astral estimated that his income tax liability for the year ended 30 June was $8000
I made a T account
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Balance b/f 500 ]
Balance c/f 8000So the amount I charged to the SOPL was 8500, but I dont know what to put in SOFP. ANd what is the overprovision here
]The amount in the SOFP will be a liability of $8,000.
The amount in the SOPL is 8,500 (which is the expense this year of 8,000 plus the under-provision last year of 500. There is no over provision)
But the income tax a debit balance! should it not be that the business has paid too much and thus an overprovision
The debit balance occurred because they had had to pay more tax than they expected that they were owing.
So the had not provided enough – an under provision.If 500 is debit balance won’t it be the tax amount that Is owed by the tax authority to us?won’t we consider it as input tax?
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