Taxation Revision

Question 1

IF there is an opening provision on deferred tax

Answer 1

Assume an over provision, treat as a minus figure

Question 2

Deferred tax opening and closing provisions

Answer 2

The difference between the (opening) and closing goes to the P&L. Closing provision goes to SoFP. E.g.

Income tax overprovision (x)
Tax provision X - SoFP
Deferred Tax X
Sum: Tax Expense - SOPL

Question 3

Income tax how to:

Answer 3

Over-provision represents a credit, add to income tax payable liability for the year to get the income tax expense. Ensure to add deferred tax and REMOVE the revaluaton

Question 4

Estimates for prior years

Answer 4

E.g. if estimated is $75k, and income tax for prior year was actually $80k, this represents an underprovision, so add $5k to this years tax expense.

The payable on the SoFP stays as just the current years value

Question 5

Deferred tax: if carrying value exceeds the tax value

Answer 5

This difference multiplied by the tax rate represents the deferred tax for the year, add opening provision as a minus to get deferred tax for the year

Question 6

If revaluation surplus’ are mentioned

Answer 6

If assets are revalued, make sure to take tax off, this comes off of the deferred tax value as a minus, for example:

Deferred tax O/B: ($16k)
Increase in provision: $23k
Less: tax on revaluation: ($3k)
Total: $4k

This also reduces the revaluation surplus figure

Question 7

Tax and Deferred tax in the SoPL and SoFP

Answer 7

In the SOFP, it’s the provision for the year that goes into the SoFP.
Deferred taxation is an NCL
Tax is a CL

Question 8

Deferred Tax Proforma

Answer 8

B/F per TB

Revaluation + Temporary difference = C/F

Difference between the two goes to Tax working