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Hi Chris,
Supposing given SOFP of 2 years comparative
And a SOCFIncome tax expense:
2010: 1000
2011: 2250Income tax paid: 1250
Q1: So the t account would look like this is it?
Dr
– b/f 1000
– Balancing figure: 1500Cr
– Cash paid 1250
– c/f 2250Q2: Would the 1500 be classified as Overprovision? If not then what is it called?
Then how do you find over/under provision in this case?Q3. Effect of effective tax rate ( to revenue and profit). How to address this? In analyzing financial statement?
Hi,
You’ve not enough information to draw the T-account. You need the opening and closing tax payable balances and they’ve not been given.
If we’ve paid 1,250 and the expense is 2,250 then the additional 1,000 expense must be due to the fact that we didn’t provide enough last year, or it relates to this year’s estimated tax liability this year.
The effective tax rate is simply the tax expense divided by the profit before tax.
Thanks
But they calculated and say its under provision. How is under provision tho?
Yes, so if we’ve paid 1,250 and the expense is 2,250 then we haven’t provided enough and therefore it is an under provision.
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