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193 The trial balance of Highwood at 31 March 20X6 showed credit balances of $800,000 on current tax and $2.6
million on deferred tax. A property was revalued during the year giving rise to deferred tax of $3.75 million.
This has been included in the deferred tax provision of $6.75 million at 31 March 20X6.
The income tax charge for the year ended 31 March 20X6 is estimated at $19.4 million.
What will be shown as the income tax charge in the statement of profit or loss of Highwood at
31 March 20X6?
$ the answer is $19 million
$’000
Current charge 19,400
Overprovision (800)
Deferred tax (W) 400
19,000
Working
Required provision 6,750
Less revaluation (3,750)
3,000
Balance b/f (2,600)
Charge to income tax 400.
Is the bal b/f as at 1st april 2005? I think that the needed provision should be 2600 since this figure is at the end of the year or should it be treated as at the start of the yr? my real question is how to account for balances in the trial balance.“Is the bal b/f as at 1st april 2005?” – of course it is, it always is in F7 questions that give you a trial balance
That’s not strictly true … but the figure in the trial balance is the figure to be treated as brought forward when you’re preparing your 2 T accounts
How to answer this question?
Open 2 T accounts, 1 for deferred tax and 1 for current tax
Deferred Tax account
Debits:
6,750 carried forward
Credits:
2,600 brought forward
3,750 transfer to Revaluation Reserve
400 missing figure transferred to current tax accountCurrent Tax account
Debits:
19,400 carried down
400 transferred from deferred tax accountCredits:
800 brought down
19,000 missing figure debited to profit or loss account as the charge for tax for the year
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