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So while doing SOCF, sometimes the extra information tells us the “tax for the year amounted to $XXX”. What does this exactly mean? Actual tax paid for the year? Accrual tax for year?
i have does 2 questions, both are not same as in how the “Tax for the year amounted to $XXX” is treated.
1) Tax payable b/d 15, c/d 12, Tax for the year amounted to $12. Answer = actual tax paid 15
This question treat the “Tax for the year amounted to $12” as accrual tax.
15(b/d)+12-12(c/d) = 15 debit tax payable, credit bank2) Tax payable b/d 11, c/d 15, Tax for the year amounted to $16. Answer = accrual tax 20
This question treat the “Tax for the year amounted to $16” as tax paid for the year.
15(c/d) + 16(dr tax payable, cr bank) – 11(b/d) = 20 accrual tax for the yearTax is calculated on the profit made during the year (although the calculation itself is not examinable in Paper FA), and is an expense for the year.
It cannot be calculated (and paid) until after the end of the year, and so at the year end the amount to be paid is estimated and is accrued for.
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