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Hello Sir, please help me answer these questions from the mock exam
1) There was a credit balance of $6200 on this year’s TB on the current tax account and the balance on the provision for deferred tax account of $31,600. the company has estimated the tax liability to be $22000 and wishes to increase it to $40 000.
What amount should be debited to the SPorL for this year’s tax charge if the tax rate is 25%
answer: 24 4002) When an asset is to be revalued, the following information is relevant:
This is the end of the asset’s 7th year
original cost $800 000
accumulated depreciation at 10% straightline $560 000
asset to be revalued to $600 000
estimated remaining useful life 5 years
what amount should be debited to the asset account and what will be next year’s depreciation charge?
Answer: 40 000 to the asset account and 160 000 depreciation chargethanks in advance
You’ve mistyped a figure (at least one) in the first question and you’ve also missed some words out!
In the deferred tax account there’s a brought down credit figure of $31,600 and, on the debit side, a carry down figure of $40,000
The figure to make this account balance is an entry on the credit side with the narrative “Current tax” of $8,400 which amount is debited in the Current Tax account with the narrative “Deferred tax”
So now, in the Current tax account there is a brought down credit amount of $6,200, a debit amount of $8,400 from the deferred tax account and a debit amount, narrative “carried down”, of $22,000
The figure that makes this balance is a credit entry, narrative “P or L”, $24,200
I am assuming that the revaluation took place on the first day of the accounting period
IF your figures are correct in question 2 (check them!) the carrying value before revaluation is $800,000 – $560,000 = $240,000 and this is being revalued to $600,000
The $360,000 increase will be credited to revaluation reserve and the debit will go ENTIRELY to the accumulated depreciation account
The answer therefore should be $zero to TNCA and $120,000 depreciation charge
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