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Hi Chris,
First, I would like to thank you and all the staff of opentuition for the wonderful work and support you all are given to us to make the Acca exams as easily as possible.
My question regards the estimated tax payable at the year-end in 1 example on page 14, which is a little dumb question, but was the only mistake that I have done before viewing your video lesson and that has made me a little confused.
The tax amount of 200 was b/f, since it was on the debit side I was thinking like we have overpaid the tax, so in the next year (current year of closing FS, 31 Dec ’17) this will be deductible from the amount of 1500 that was estimated at the year-end. So I put the figure of 1300 as the net value on SoPL which gave me the wrong amount of 400 on net profit.
Since the actual figure of the year was 1700 on SoPL and 1500 on tax payables in SoFP at the year-end, this 1500 is like a kind of payment in advance to the tax office for the next year, or what? Or, just an estimated value that the company will pay the tax next year? If this figure is estimated for the tax payables of the next year, then why we should recognise it the SoPL of this year?
I don’t know if I have make the right questions above, but since this has made me a little confused, Please, can you just explain it in a few words.
Thank you again in advance for your time and support.
Hi Denis,
Thanks for the kind words and glad you’ve enjoyed the work we’ve done.
You’re correct in that the 200 debit balance brought forward is paying more than what we estimated but the reason that we are paying more is because we didn’t include enough of a tax charge in last year’s accounts, it is effectively an underprovision. Let’s say we estimated it at 1,000 ut the tax authorities said we had to pay 1,200. This amount of 200 therefore needs to be added back to this year’s estimate and hence the total charge this year of 1,700.
Hope that helps clear it up, personally, I’d always use a T-account.
Thanks
Chris
Hi Chris,
Thank you for the clear answer above, helped me a lot.
With this explanation, the T-account makes more sense now on this topic.Thank you again and wishing you a nice day.
Denis
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