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1/ In exam June 2013, question number 2 preparing FS:
– estimate income tax provision of 27,200 for 31 Mar 2013
– at that date, DTL is 9,400. In SFP, deferred tax is credited 6,200
– movement on deferred tax should be taken to SPL
– current tax is credited 1,200In the solution:
Dr. tax expense 27,200 – Cr. tax payable 27,200
Dr. tax expense 3,200 – Cr. DTL 3,200
Dr. tax pay 1,200 – Cr. tax expense 1,200I dont understand why DTL increase, then it make increase tax expense (Dr. tax expense 3,200 – Cr. DTL 3,200)
2/
– A debit balance of 2,100 b/f on current tax
– A credit balance of 5,400 on deferred tax
– tax charge for current year estimated at 16,200
– CV of net assets are 13,000 in excess of their tax base
– tax rate 30%
Calculate income tax.
Please help me solve this question by journal entries.I am so confused about tax income, deferred tax..
Please help me
Thank you very much!!Is there any reason why you chose not to give me full information for this first question? Like balances brought forward in the trial balance?
1) ‘I dont understand why DTL increase, then it make increase tax expense (Dr. tax expense 3,200 – Cr. DTL 3,200)’
Because the question tells you to!
“The movement on deferred tax should be taken to profit or loss”
2) Open 2 T accounts, one for deferred tax and one for current tax
Deferred tax
Debit side:
3,900 (30% x 13,000 carried forward)
Credit side:
9,400 (brought forward)
Missing figure on the debit side is 1,500 so we debit deferred tax account 1,500 and credit current tax account
Current tax
Debit side:
2,100 (brought forward)
16,200 (estimated liability for this year)
Credit side:
1,500 (transferred from deferred tax account)
Missing figure on the credit side is 16,800 so we debit statement of profit or loss account 16,800 and credit current tax account (this year’s tax charge)
OK?
Practice the taxation section of the mini-exercises towards the back of the course notes – it will be well worth the effort!
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