Taxation

Open 2 T accounts - Deferred Tax and Current Tax In Deferred Tax, on the credits, you have a brought forward figure of 30,000 On the debits, there is a carried forward figure of 50,000 (I assume it's thousands in your post and not 50) So, to balance off that account we need a credit entry of 20,000 and that is debited to Current Tax account In the Current Tax account there is on the debit side a brought forward figure of 50,000 Also on the debit side is the liability to carry down of 150,000 And the 20,000 just transferred from Deferred Tax account On the credit side is the charge to the statement of profit or loss of 160,000 That leaves us with a missing figure on the credit side of this account and that must have been Debit Cash, Credit Current Tax with 40,000 OK?

The principle is deferred tax liability will increase a current tax (and we add up to the current tax which means credit) and deferred tax asset will decrease(debit current tax), is that right sir? But what is double entry for the tax received of 40,000 ( i suppose that it's 60,000)??? it's currently in credit side of current tax T-account if i'm not wrong Another thing sir, when the question says "A company's trial balance shows a debit balance of $2.1 million brought forward on current tax" that means that it also is a credit balance of income tax expense (P&L) And also the same as "a credit balance of $5.4 million on deferred tax" -> debit balance And two of these can offset to each other then we will have debit balance b/f of 3,900 of income tax Can you open up the current and deffered tax T-accounts to solve this question because i need to refer to income tax expense T-account to answer this :( "A company's trial balance shows a debit balance of $2.1 million brought forward on current tax and a credit balance of $5.4 million on deferred tax. The tax charge for the current year is estimated at $16.2 million and the carrying amounts of net assets are $13 million in excess of their tax base. The income tax rate is 30% What amount will be shown as income tax in the statement of profit or loss for the year?"

"But what is double entry for the tax received of 40,000" - as I wrote in my response, the double entry for the cash received is "Debit Cash, Credit Current Tax with 40,000" "( i suppose that it’s 60,000)???" - WHAT???? Where's that come from? As for the whole of the remainder of your post except the final paragraph, I'm sorry to have to say this ..... you really need to go back to John's F3 lectures and understand better the expressions "balancing off accounts" and "trial balance" Now, the final paragraph Open 2 T accounts – Deferred Tax and Current Tax In Deferred Tax, on the credits, you have a brought forward figure of 5,400 On the debits, there is a carried forward figure of 3,900 So, to balance off that account we need a debit entry of 1,500 and that is credited to Current Tax account In the Current Tax account there is on the debit side a brought forward figure of 2,100 Also on the debit side is the liability to carry down of 16,200 1,500 just transferred from Deferred Tax account On the credit side is the 1,500 just transferred from Deferred Tax account That now leaves a balance on the Current Tax account of 17,200 and that is credited to Current Tax account and debited to statement of profit or loss as the charge for the year OK?

Sorry i've been misleading between current tax and tax liability i though they are same account but they didn't Current tax is on PL and the other one is on FP Now i have understood, thank you sir

I really hope that you do understand (though I'm not convinced!) The double entry to the statement of profit or loss comes from the Current Tax account and the tax liability for the statement of financial position also comes from the Current Tax account Make sure you're on top of this - it's got a really strong chance of being asked - at least in the mcqs but also in the accounts preparation question

"What amount will be shown as income tax in the statement of profit or loss for the year?" Ok so if i'm not wrong "income tax" in this question above is the amount after we have adjusted current tax by deferred tax Is it correct?

As I said in my post April 27 at 7.03 am ..... "On the credit side is the charge to the statement of profit or loss of 160,000" and again in my post of April 28 at 7.22 am ..... "That now leaves a balance on the Current Tax account of 17,200 and that is credited to Current Tax account and debited to statement of profit or loss as the charge for the year" I honestly cannot make it any clearer

Im very appreciated your kindness but im concerning with 2 issues related to this standard 1/ Obviously we had paid a current tax first thereafter we had the actual figure of current tax which is a basis to calculate for under/ over provision Where is the actual one come from??? 2/ We have already charged tax expense on P&L corresponding to deferred tax liability on FP And those deferred tax will be paid separately at later?

"1/ Obviously we had paid a current tax first thereafter we had the actual figure of current tax which is a basis to calculate for under/ over provision" - I don't believe you understand the way this works because your question actually makes no sense! At the end of every year, every entity will assess the extent of the tax liability and carry that estimated tax liability down into the next year There is now a balance of the Current Tax Account and the figure to make the total of both sides of the account equal is then the tax charge / expense in the Statement of Profit or Loss So, here we are in the new year with a Current Tax Account showing on the credit side a balance brought forward from last year (Forget the Deferred Tax Account for the moment) During the year the government department HMRC will also compute the entity's liability and will notify the entity of how much tax the HMRC believes is due to be paid The entity will make the payment (maybe after some arguing with HMRC!) to settle the entity's liability. The amount paid may be the same as the entity had estimated or is could be greater or less than the amount estimated. If we have had to pay more than was originally estimated that will mean that there is now a debit balance of that Current Tax Account. Now another year has passed and the whole process starts again with an estimate being made for this year's liability There is now a balance of the Current Tax Account and the figure to make the total of both sides of the account equal is then the tax charge / expense in the Statement of Profit or Loss During the year the government department HMRC will also compute the entity's liability and will notify the entity of how much tax the HMRC believes is due to be paid The entity will make the payment (maybe after some arguing with HMRC!) to settle the entity's liability The amount paid may be the same as the entity had estimated or is could be greater or less than the amount estimated. If we have had to pay more than was originally estimated that will mean that there is now a debit balance of that Current Tax Account. Now another year has passed and the whole process starts again with an estimate being made for this year's liability There is now a balance of the Current Tax Account and the figure to make the total of both sides of the account equal is then the tax charge / expense in the Statement of Profit or Loss During the year the government department HMRC will also compute the entity's liability and will notify the entity of how much tax the HMRC believes is due to be paid The entity will make the payment (maybe after some arguing with HMRC!) to settle the entity's liability. The amount paid may be the same as the entity had estimated or is could be greater or less than the amount estimated. If we have had to pay more than was originally estimated that will mean that there is now a debit balance of that Current Tax Account. Now another year has passed and the whole process starts again with an estimate being made for this year's liability There is now a balance of the Current Tax Account and the figure to make the total of both sides of the account equal is then the tax charge / expense in the Statement of Profit or Loss and so on Now, the Deferred Tax element Primarily as a result of what is known as "timing differences" the entity will KNOW today that a paper gain on some of their assets WILL result in a tax liability in the future So an estimate is made of the extent of that future liability and that estimated liability is used as a carry down from debit to credit in the Deferred Tax Account That happens every year - sometimes the carry down is greater than the amount brought forward from last year, and sometimes it's less The figure necessary to make the totals of the two sides of the deferred tax account balance is double entered from the Deferred Tax Account to the Current Tax Account That happens every year - sometimes the carry down is greater than the amount brought forward from last year, and sometimes it's less The figure necessary to make the totals of the two sides of the deferred tax account balance is double entered from the Deferred Tax Account to the Current Tax Account That happens every year - sometimes the carry down is greater than the amount brought forward from last year, and sometimes it's less The figure necessary to make the totals of the two sides of the deferred tax account balance is double entered from the Deferred Tax Account to the Current Tax Account and so on OK?