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FI - Question bank - Task 2 - revision example 2

Hi All!

Can somebody, please clarify section of task 2 for me?
I have highlighted the part that I am struggling with, please see attached.

1)The answer says that in the Trade and other payables workings interest is 2 - why is not 4 or why is the 2K not added to accruals?
2) Corporation tax - the 8K in the trial balance is over provision in the previous year and the corporation tax liability estimate for the year ended 31 May 20X4 is £68,000 so why is in the Statement of financial position as at 31 May 2014 the Taxation 68 not 60?

Many thanks in advance for your help with this!


  • Clintm15Clintm15 Well-Known FarehamRegistered Posts: 247
    edited September 2019
    1) The £4 interest that wasn't accounted for will be credited to the interest payable account and the £2 interest paid that is held as a debit on the trial balance will reduce the balance to £2.

    To be clear, the entries would look like this:

    DR Interest £4 (SPL)
    CR Interest payable £4 (SFP)

    DR Interest payable £2 (SFP)
    CR Bank £2 (SFP)

    As far as why it isn't added to the accruals, this is because accruals tend to relate to overhead expense accounts. VAT payable and Interest payable would likely be dedicated SFP accounts, whereas overhead expenses owed would be held in the accruals account and then reversed out into their respective expense accounts for the start of the new year.

    2) The question doesn't make things very clear, but seeing that there isn't a tax liability on the original trial balance, it can be assumed that last years tax liability was paid off. Therefore, the £8k that relates to the over-provision from the previous year is merely a refund, rather than an adjustment. The debit entry was received into the bank so this credit entry can just offset the corporation tax charge in the SPL. That means that the £68k on the SFP will remain untouched.
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • Pian32Pian32 Registered Posts: 247
    edited September 2019
    For the £68k this is the liability for next year. The 8k provision was never paid and as such isn't removed from the statement.
    Instead the adjustment would be £60k debit to the tax on the P+L and £60k credit to the corp tax liability.

    I think what's got you muddled is a mix up with the debits and credits which are split in the trial balance but merged in the SOFP. In both cases you are adding to the credit side of the balance.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Planned for Dec 2020
    F6- Passed Sep 2020
  • ZanaZana AAT Student Posts: 27
    Thank you both @Clintm15 and @Pian32
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