Hello sir, I was attempting this question but I couldn't get the correct answer. The question is written below.
Bruce co is preparing financial statements for the year ended 31 May 20x0. The tax charge has been estimated as $100,000 for the year . In the previous financial year the tax expense was estimated to be $90,000 and the company actually paid $105,000 when the tax expense was agreed with tax authorities. What should be the tax expense in the SOPL for the year ended 31 May 20x0?
The answer I got was $85,000 as I thought, when reading the question, that Bruce co had overprovided tax by $15,000. However the answer is actually $115,000 and according to the answer, its because Bruce co had under provided tax by $15,000. I am really confused on this as I have seen the relevant lectures for sales tax provided by Opentuition but still don't understand why this is the case.
Many thanks in advance
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Sales tax question
5y ago#1This is nothing to do with sales tax. Sales tax if the tax charged and suffered on sales and on payments.
This question is about the company tax that is charged on the profits made by the company as explained the lectures on limited companies.
Because they will not know what the tax for the year is until after the year has finished, they have to estimate andaccrue for it.
This year they estimate the tax to be $100,000 and so if there had not been the problem last year, then would show and expense in the SOPL and a liability in the SOFP, both of the $100,000 owing.
However, last year the estimated only $90,000 and so only showed an expense of $90,000 in last years SOPL. It turns out that the estimate was wrong and the actual amount should have been $15,000 higher. It is too late now to change last years account, and so the extra $15,000 is charged as an expense this year, in addition to the $100,000 for this year.
(It is actually following the same rules as I explain for normal accruals when the amount has to be estimated, in my free lectures on accruals and prepayments.)
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