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First of all when we talk about tax liability it means the figure which appears in the Balance sheet.
it should be composed of two things
The deferred tax balance : which I supposed it will be the total deferred tax amount during the year .
and the provision of tax for the year
so how it was arrived at in the following qusetion.
Please clarify this critical point Sir,
134 Jasper Orange Co’s trial balance at 31 December 20X3 shows a debit balance of $700,000 on current tax
and a credit balance of $8,400,000 on deferred tax. The directors have estimated the provision for income
tax for the year at $4.5 million and the required deferred tax provision is $5.6 million, $1.2 million of which
relates to a property revaluation.
What is the tax liability recognised in Jasper Orange Co’s statement of financial position for the year ended
31 December 20X3?
A $1 million
B $2.4 million
C $1.2 million
D $3.6 million
134 C $1.2million
Prior year underprovision 700
Current provision 4,500
Movement of deferred tax (8.4 – 5.6) (2,800)
Deferred tax on revaluation surplus (1,200)
Tax liability for the year 1,200
No! The tax liability is the estimate for the current year-end. Where did the above question come from as if it is asking for the tax liability then this is the balance of $4.5m. From the answer given it looks like the question should be asking for the tax expense recorded in profit or loss.
Thanks a lot.