Semester 2 Week 3 Tutorial 2 Flashcards
Fabiani Plc. has taxable profits of £5,000,000 for the year ended 31 December 20X2, the tax rate is 15%. As a larger company Faniani pays tax in quarterly instalments.
a. Calculate the total tax for the year ended 31 December 20X2.
b. Prepare the journal entries for the year ended 31 December 20X2.
Paisley Plc. are a large company which pay tax by quarterly instalments. They have a 30 April 20X3 year end. The tax rate in force is 15%.
a. At the time the first two instalments were made a taxable profit of £12,000,000 was expected. Prepare the journals for the first two instalments.
b. At the year end the Chief Accountant of Paisley estimated that taxable profits for the year were actually £15,000,000. Prepare the journal for the year end accrual.
Herriot Plc. are a larger company which pay tax in quarterly instalments. The tax rate in force is 15%.
a. For the year ended 31 December 20X3 the expected taxable profits are £10,000,000. Prepare the journals for the year ended 31 December 20X3.
b. The third instalment was paid on time and based on the amount expected in January 20X4. In April 20X4, however, before the final payment was made the taxable profits for the year were confirmed as £12,000,000. Prepare the journal for the final payment in April 20X4.
Dundas Ltd. have made a taxable loss of £1,000,000 for the year. The tax rate in force is 15%. Dundas’s accountant is confident that they will receive a refund from the tax authorities. Prepare the journal to account for this.
Define what deferred tax is and why it is necessary.
Deferred tax is the future tax consequences of transactions entered into at the year-end date. In line with the accruals concept transactions should be entered when the company is committed rather than when the cash payment or income is made. In essence it shows what the tax consequences would be if all assets were sold and all liabilities settled at the year end date.
This ensures that the financial statements give a true and fair view. It would be misleading for users of the financial statements if there were large potential future tax consequences which were not recognised.
Give three examples of items/transactions which could give rise to temporary differences.
This could include, the difference between the carrying value (NBV) of assets and their value for tax purposes, the revaluation of assets, general bad debt provisions and pension assets and liabilities.
Describe what a deferred tax asset means.
A deferred tax asset means that a transaction has taken place which when it settles in the future will lead to less tax being paid.
Identify what would need to be in place for a deferred tax asset to be recognised.
A deferred tax asset should only be recognised if there are likely to be profits in the future available to offset the deferred tax against. It is not possible to pay less tax if you are not paying any tax in the first place!
