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Hi sir, I urgently need advice, I have so far prepared almost all topics in F7 but I am still struggling in question 2 of the paper (Single Financial statements) I am so far ok with with Q1 Consolidation, Q3 Cashflows and interpretation and I hope I will not be having any difficulty in question 4 and 5, but question 2 is having alot of problems, specially the deffered taxation parts and loan notes are hell of a pain for me!! I am taking too much time to complete the whole question and also making alot of mistakes, this question always confuses me and causes alot of panic, I decided that at the day of paper I will attempt it as last question, since only 1 week left, please advice me how can I tackle this type of question ? what will be the step by step procedure 🙁 ? Many Thanks in Advance……..
This is my post to the same question, posted on October 29 under the thread heading of Mini exercises – Taxation:
Open up two T accounts. One called deferred tax and the other called current tax.
Put in the figures given for the values brought forward paying GREAT attention to getting those figures on the correct debit / credit side.
The question will then give you either the “tax charge”, “the tax liability”, the “provision required for deferred tax” or details of the difference between the tax values compared with the carrying values of the company’s assets.
Ok, if it’s the tax charge, this goes into the credit side of the current tax account.
If it’s tax liability, this goes in the debit side of the current tax account above the total lines and on the credit side below the total lines.
If it’s the required provision for deferred taxation, Open up two T accounts. One called deferred tax and the other called current tax.
Put in the figures given for the values brought forward paying GREAT attention to getting those figures on the correct debit / credit side.
The question will then give you either the “tax charge”, “the tax liability”, the “provision required for deferred tax”, the “provision required for current tax” or details of the difference between the tax values compared with the carrying values of the company’s assets.
Ok, if it’s the tax charge, this goes into the credit side of the current tax account.
If it’s tax liability, this goes in the debit side of the current tax account above the total lines and on the credit side below the total lines.
If it’s the required provision for deferred tax, this goes on the debit side in the deferred tax account above the total lines and on the credit side below those total lines.
If it’s the required provision for current tax, this goes on the debit side in the current tax account above the total lines and on the credit side below those total lines.
If it’s the detail of the difference, multiply that difference by the tax rate (given in the question) . Take that calculated figure and put it in the deferred tax account above the total lines and in the credit side below the total lines.
Balance off the deferred tax account and double enter that balancing figure into the current tax account – it could be either a debit or a credit entry in those accounts.
Now balance off the current tax account and the difference that you arrive at will be either the tax charge (needs to be debited to the Statement of Income) or the tax liability (shown as a liability on the Statement of Financial Position)
Does that make it any easier?
If not, post againThank you so much sir, you make it very clear and easy 😀 …………… and yeah one more thing, can I miss direct method for IAS 7 cashflows as you and others said that it will be highly unlikely in exam because its somehow not so easy as compared to indirect method for me and also up till now its not asked!! ??
If I were to miss anything at all, it would probably be the direct method of cash flows. You’re correct, it hasn’t been asked except as a 5 mark chat in part b) of a question. But really you shouldn’t be looking to miss anything.
Yes, I know, time is pressing and so you need to prioritise. So ok, miss direct method of cash flows
Hi Mike,
i was quite confindent with this reffered tax until now: look pls, at sandown 12/09 bpp. We have a excess of 13mil on the tax base.
if 2100 crt tax was underprovis this amount must be added to 16.2 correct! but deffered was 5400 over so from this i deduct 3900 (13mil*30% deffer tax) … = 1500. So this amount shold be added nt deducted from income tax?!
i don’t know if i was quite clear.
thank you,
We have too much deferred tax provision – in previous years we have cumulatively deducted from profits 5,400 and information now says we only need 3,900. So the double entry is to debit deferred tax account and credit current tax account.
When you say the current tax was under-provided, if I assume that you know your unders from your overs, that means that we are given a debit balance in the trial balance for current tax of 2,100 debit
So now we are in the position with the current tax account of a brought forward debit of 2,100 and a transfer from deferred tax of 1,500 in the credit side.
Enter the current tax estimated liability above the total lines on the debit side and below the lines on the credit side with narratives C/d and b/d respectively.
Now balance off the current tax account and the missing figure is the tax expense for the year
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