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Hi Chris
First of all, I’m not entirely sure which module forum would be best suited for this question so apologies in advance if it should have gone into perhaps the SBR forum instead.
Basically, I wanted to know what the taxes on both the Profit and Loss Statement and Statement of Financial Position specifically mean and represent in both instances. I think I heard that on the Financial Position, it represents an estimate. Is that true? Or is that the Profit and Loss? Thank you.
Kind regards
James
Hi James,
The question would apply to all three papers (FA, FR and SBR). The tax payable in current liabilities is the estimate of the tax payable that is made at the reporting date.
The profit or loss expense looks at this amount, adjusts for any under/over provision and then includes the movement in the deferred tax liability/asset.
Thanks
Hi Chris
Does that mean the Tax figure on the Profit and Loss represents the accurate tax figure? Thank you.
Kind regards
James
Hi James,
No the figure on the profit or loss is not the accurate tax figure. The accurate tax figure comes from the tax authorities. We merely estimate it and record it in the accounts at the reporting date. Once the actual amount is recorded then we make and adjustments in the following accounting period to account for the change in estimate.
Thanks
Hi Chris
OK, thanks for that. Does that mean the tax figure on both the Profit and Loss and Statement of Financial Position represent estimate figures? Thank you.
Kind regards
James
Hi,
Effectively they are with adjustments made to change from the prior year estimate to correct it.
Thanks
Hi Chris
OK, thanks for that. Yep, I think I understand. Thank you.
Kind regards
James
Glad you’re there. I’d recommend that you look at all the past exam questions on company accounts and without doing the whole question, just focus on the tax part of the question and understand how it is answered. That will help greatly in relation to finalising the understanding.
Thanks
Hi Chris, I’m really sorry for not replying sooner on this. OK, will do. Thanks again for your feedback and help on this.
Kind regards
James
Hi Chris
https://www.youtube.com/watch?time_continue=1411&v=oB0PhPtS3iU&feature=emb_title
Many thanks for your help in general up to this point on many different topics including this one. With regards to the tax bit at 24.25 on the above video, can you possibly explain further why we put the 1500 c/f figure on the debit side? I’m trying to get my head round why we have done this and I’m struggling a bit. I can see that in the Statement of Cash Flows section of the syllabus in the lecture video, where we do a Tax Payable T Account, the c/f figure is on the debit side so there does appear to be consistency on this with the b/f figure being shown on the credit side. Is it therefore simply the case that in this video shown above, it was a rare instance that the b/f figure was shown on the debit side on the trial balance? Apologies if this is confusing. Thanks in advance.
Kind regards
James
Hi James,
No worried and glad to have been able to help. Yes, the c/f is on the debit side as it is a liability that will be b/f next year as a liability on the credit side, being next year’s opening balance. This years closing balance is therefore on the debit side ready to be brought forward next year on the credit side.
Hope that makes sense.
Thanks
Hi Chris, yep, makes sense and thanks for your help once again. Merry Christmas by the way if I don’t post anything more between now and Christmas Day. Thank you.
Kind regards
James
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