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Chapter 13
Example 2
Taxation
King has the following items on its trial balance at 30 September 20X9.
Dr Cr
Deferred tax 17,000
Taxation 2,200
The directors of King estimate that the provision necessary for tax on current
year profit is $26,000. The difference between the carrying amount and lower
tax base of King’s net assets is $63,000. King’s rate of income tax is 30%.
Required:
Show the impact of the above on the financial statements of King for the
year ended 30 September 20X9.
Solution:
The tax impact is calculated in three stages (referenced in the answer below):
1 Transfer the figures from the trial balance onto the pro-forma. In this
case the debit balance for taxation forms part of the SPL tax expense for
the year and the deferred tax balance is entered onto the SFP under
non-current assets.
2 Use the figure given for current year taxation to increase the tax
expense in the SPL and create a current liability on the SFP.
3 Calculate the required provision for deferred tax, compare it to the
brought forward figure and account for the movement in SPL expense.
(W1) Provision required for deferred taxation at 30 September 20X9:
$63,000 × 30% = $18,900
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