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Question 3 Mini Exercises
Extract from draft financial statements at 31 March, 2009
Deferred tax liability at 1 April, 2008 19,200During the year the company’s taxable temporary differences increased by $10 million of which $6 million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the temporary differences should be taken to the Statement of Profit or Loss. The applicable income tax rate is 20%
The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 2009. The directors have estimated the provision at $11.4 million.
Calculate the extracts where relevant from the Statement of Income and the Statement of
Financial PositionWhy are you asking me to solve this? I wrote the question (actually I copied extracts from a real exam question!)
If you have arrived at question 3 in these mini-exercises, then presumably you’ve done the first 2
So why is number 3 more difficult for you to understand?
Let me know which figure you’re stuck on and I’ll try to help
I understood all the exercise under Taxation but these one seems to be a little tricky to me.
Actually i cant seem to understand why Dr P & L 12 200 and Cr CT 12 200
The increase by $10 million of which $6 million related to the revaluation of the property, does that mean the taxable temporary difference is $4 million?
Deferred tax account
Debits:
$21,200 provision carried forward to next year (that’s an increase in the provision of 20% x $10,000 (“the company’s taxable temporary differences increased by $10 million”))
Credits:
$19,200 (provision balance brought forward from last year)
$1,200 transfer to Revaluation Reserve (that’s 20% x the $6,000 element of the increase of $10,000 in the taxable temporary differences)
$800 is the balancing figure in the deferred tax account and is double entered to the current tax accountCurrent tax account
Debits:
$800 which is the double entered figure from the credit side of the deferred tax account
$11,400 which is the directors’ estimate of the tax liability based on this year’s profits and is carried forward into next year as an obligation to be settled within 12 monthsCredits:
$12,200 the balancing figure in the current tax account that is now expensed through the statement of profit or loss and is referred to as this year’s tax charge
OK?
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