Chapter 5 - Solutions to Gripping IFRS: Graded Questions...

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Solutions to Gripping IFRS: Graded Questions Accounting for taxation Chapter 5: Page 1 Solution 5.1 The case in this question is therefore possible if the provisional payments during the year exceeded the final tax calculated, resulting in a debtor being raised on the statement of financial position, while at the same time the tax authority assessed the taxation due as being greater than that calculated and provided by the company, resulting in an under-provision. This under- provision will now have to be paid in the current year (i.e. the year in which the tax assessment is received). The accounting entry will have to be a debit to taxation in the statement of comprehensive income and a credit to bank or creditors.
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Solutions to Gripping IFRS: Graded Questions Accounting for taxation Chapter 5: Page 2 Solution 5.2 (a) Ledger accounts CURRENT TAX PAYABLE/ RECEIVABLE 20X1 C 20X1 C 30 June Bank 26 000 31 Dec Taxation 56 000 31 Dec Bank 28 000 31 Dec Balance 2 000 56 000 56 000 20X2 20X2 16 May Bank (underpayment) 2 000 1 Jan Balance (1) 2 000 30 June Bank 29 000 31 Dec Taxation 58 000 31 Dec Bank 30 000 31 Dec Balance 1 000 61 000 61 000 20X3 20X3 1 Jan Balance (2) 1 000 19 May Taxation (under-prov) 1 500 19 June Bank (underpayment) 500 30 June Bank 31 000 31 Dec Taxation 65 000 31 Dec Bank 31 500 31 Dec Balance 2 500 66 500 66 500 20X4 20X4 18 April Taxation (over-prov) 200 1 Jan Balance (3) 2 500 18 May Bank (underpayment) 2 300 30 June Bank 33 000 31 Dec Taxation 67 400 31 Dec Bank 34 000 31 Dec Balance 400 69 900 69 900 20X5 1 Jan Balance (4) 400 TAXATION EXPENSE 20X1 C 20X1 C 31 Dec Current tax payable 56 000 31 Dec Retained earnings 56 000 20X2 20X2 31 Dec Current tax payable 58 000 31 Dec Retained earnings 58 000 20X3 20X3 19 May Current tax payable 1 500 31 Dec Retained earnings 66 500 31 Dec Current tax payable 65 000 66 500 66 500 20X4 20X4 31 Dec Current tax payable 67 400 18 April Current tax payable 200 31 Dec Retained earnings 67 200 67 400 67 400 Balance at 01/01/X2 (1) 01/01/X3 (2) 01/01/X4 (3) 01/01/X5 (4) Provide 56 000 58 000 65 000 67 400 Pay 54 000 59 000 62 500 67 000 2 000 (1 000) 2 500 400
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Solutions to Gripping IFRS: Graded Questions Accounting for taxation Chapter 5: Page 3 Solution 5.2 continued. . (b) Disclosure in the annual financial statements MISTY RIDGE LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X1 Note 20X4 C 20X3 C 20X2 C 20X1 C Current liabilities Current tax payable 400 2 500 0 2 000 Current assets Current tax receivable 0 0 1 000 0 MISTY RIDGE LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X4 Note 20X4 C 20X3 C 20X2 C 20X1 C Income tax expense 14 67 200 66 500 58 000 56 000 MISTY RIDGE LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 20X4 20X4 C 20X3 C 20X2 C 20X1 C 14 Taxation Normal tax Current tax - for the current year -
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Chapter 5 - Solutions to Gripping IFRS: Graded Questions...

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