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“On 1 July 2012, Monty acquired additional plant under a finance lease that had a fair value of $1·5 million. On this date it also revalued its property upwards by $2 million and transferred $650,000 of the resulting revaluation reserve this created to deferred tax. There were no disposals of non-current assets during the period.”
Here we are required to prepare a statement of cash flow for the year end 31 march 2013.
While calculating the cash paid for income tax the examiner deducted 650000 why he did that?Arent we suppose to add the deferred tax for the current year?“and transferred $650,000 of the resulting revaluation reserve this created to deferred tax.”
You have this the wrong way round – it’s not a transfer from Revaluation Reserve TO Deferred Tax! It’s a transfer FROM Deferred Tax to Revaluation Reserve
Give me full information please!
I need:
Brought forward figures (DT and CT)
Carry forward figures (DT and CT)
Current Tax charge for the year
@mikelittle said:
“and transferred $650,000 of the resulting revaluation reserve this created to deferred tax.”You have this the wrong way round – it’s not a transfer from Revaluation Reserve TO Deferred Tax! It’s a transfer FROM Deferred Tax to Revaluation Reserve
Give me full information please!
I need:
Brought forward figures (DT and CT)
Carry forward figures (DT and CT)
Current Tax charge for the year
Well i did not have wrong way around.I exactly copied the above sentence from the past paper.I think there are some errors in that past paper.Also the way net assets figure was calculated for net assets turnover ratio does not make any sense.It.s Q3 june 2013
https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f7/exampapers/int/F7INT_2013_jun_q.pdfFinance lease liabilities and loans are often used as part of the calculation of capital employed if that’s what is concerning you about the net asset figure calculation
As for the tax calculations … get used to doing this – it really is incredibly straight-forward!
Open 2 T accounts, one for Deferred Tax and one for Current Tax
Put in the credit sides the liabilities brought forward (800 and 725 respectively)
Put in the debit sides the liabilities carried forward (1,500 and 1,250 respectively)
Put in the credit side of the Current Tax account this year’s charge to the statement of profit or loss (1,000)
We’re told about the 650 deferred tax relating to the revaluation … enter that on the credit side of the Deferred Tax account and double enter it to the debit side of the Revaluation Reserve
Balance off the Deferred Tax account (missing figure is 50 on the credit side) and double enter that balance to the debit side of the Current Tax account
Balance off the Current Tax account and the missing figure (425 on the debit side) must represent the cash paid in respect of taxation
As for the “from / to” matter, the Revaluation Reserve has just been credited with $2 million and that unrealised gain has now given rise to the need for an increase in the Deferred Tax provision
If we don’t make an appropriate transfer to the Revaluation Reserve, the balancing figure on that Deferred Tax account … the figure that we would transfer to the Current Tax account … would change from 50 (credit from Deferred Tax to 50 debit the Current Tax) to 700 (credit from Deferred Tax to 700 debit the Current Tax)
That, in turn, would result in a change from a cash OUTFLOW of 425 to being a cash INFLOW of 225
Whenever you see a revaluation in a question, look out for the deferred tax implication and, if it’s there, the entry that you will most probably require is a credit in the Deferred Tax account to a debit in the Revaluation Reserve.
Just occasionally the examiner will tell you to ignore the deferred tax implications of the revaluation but it’s more probable that you’ll need to make that adjustment like we did with the 650
OK?
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