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Hello Sir,
The revaluation gains presented at the financial position , as OCE ( Revaluation surplus ) .
But the tax on that revaluation, how to be presented ?
for example , Revaluation gains is 100.0$ and the tax on that gains is $20.00
the amount of surplus at the balance sheet will be $ 100.00 as gross or net of tax $80.00 ?
Thanks
But, then, the tax expense of ($20.000) would be included at S.F.P (under Equity) twice,
one time at the retained earnings calculation, and one more at the Revaluation surplus
(OCE) , Right?
In the same way that depreciation is shown twice – once as a deduction in arriving at net book value and again as a deduction in arriving at retained earnings!
That tax about which you are concerned … it’s a deduction from the revaluation surplus and it’s a decrease in the tax charge
Let’s revalue the asset by $100, say we have a balance brought forward of $850 on the deferred tax account, carrying values of other TNCA exceed tax values by $4,500 (not including that revalued asset) an estimated tax liability based on profits for the year of $620 and a tax rate of 20%
Open 4 T Accounts – Deferred Tax (DT) Current Tax (CT) TNCA and Revaluation Reserve (RR)
Put in the credit side of DT the amount brought forward $850 and in the debit side the amount carried forward $900 (20% x $4,500)
In CT put in the debit side the amount of this year’s estimated liability carried forward $620
Revalue the asset Dr TNCA $100 Cr RR $100
Account for the deferred tax on the asset Dr RR $20 and Credit DT $20
In DT carry down this extra deferred tax liability of $20 from debit side above the line to credit side below the line
Balance off the DT account and take the balance to CT account
Dr CT $50 Cr DT $50
Balance off CT to SoPorL $670
Balances now are:
TNCA +$100
RR $80
DT $920
CT $620Is that any better?
Thanks a lot for that explaination, it is understood, but i still have one inquiry :
As it is known that the movement (difference) in both of tax provisions, and deferred tax brought forward & carried forward balances, represents the tax expense for the year .
So, for calculating the tax expense it should be between (accumulated) balances .But, i always find at the questions the following statements :
– an estimated tax liability based on profits for the year of $ 000 (above mentioned) .
– a Provision for year ended is $ .
– a provision of $ is required for current income tax on the profit of the year to 30 September 2014.
all of them mean, they are attributable for the last year , not accumulated balance .
Am i right ?
ThanksThis is the information that you need to carry down the figure that is given
“– an estimated tax liability based on profits for the year of $ 18,200 means the same as
– the provision for year ended is $18,200 is the same as
– a provision of $18,200 is required for current income tax on the profit of the year to 30 September 2014 is the same as
– the estimated liability for current tax based on the profits for the year is $18,200”
Just different ways of saying the same thing
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