Everybody loves to see a note that says ‘Ignore deferred tax’ but sooner or later you will still have to face it head on & have to come up victorious, because winners win, right?
In the context of ACCA Financial Reporting (FR) let’s look at a few things to be on the lookout for in the exam to increase your chances of collecting full marks on everything relating to IAS 12 Income Taxes. You will remember of course this covers both current tax and deferred tax
1. Over or Under provision?
This is a skills module paper so most times you will be given a trial balance with just a debit or credit balance on current tax & you will have to know yourself whether it is an over or under provision. If it is a debit balance it is an under provision and if it is a credit balance it is an over provision. You know how to account for those in the tax expense account, yes?
2. Increase or decrease in deferred tax
Increase or decrease in deferred tax goes to deferred tax account. Then the corresponding entry goes to the tax expense account, right? Well, it depends! Depends on what? The increase or decrease will go to the tax expense account to the extent that temporary differences are caused by profit & loss items like depreciation, If say you have increase relating to Property revaluation then the deferred tax relating to that should go to other comprehensive income because that is where the revaluation gain that caused the difference is
3. Know your double entry
Can’t stress this one enough. Know how the Tax expense looks like, what goes into the debit and what goes into the credit side ( Usually things do deal with will be charge for the year, over or under provision then Increase or decrease in deferred tax) Know how deferred tax account looks like and what goes to which side of the account.
How about we illustrate all these with real life questions from past exams? Well, expect that soon in a form of a video.
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