Corporation Tax - Over provision b/fwd

zippy · February 2008

Morning

Can anyone advise me how to deal with this item given on the trial balance?

It has a £7,200 balance for over provision b/fwd and in additional information it tells you that the estimated liability for the year will £30,600.

How should i deal with this on both the Income Statement and Balance Sheet?

Thanks

peugeot · February 2008

The over provision means that in prior periods post-tax profits have been understated and tax creditors overstated. So the over provision needs correcting in the period you are doing.
To correct this you need to:

credit the tax charge in in the income statement with £7,200 and debit the tax liability in the statement of financial position (balance sheet) with £7,200.

Then you need to account for this year's tax liability, so you will:

debit the tax charge in in the income statement with £30,600 and credit the tax liability in the statement of financial position (bal sheet) with £30,600.

Hope that helps.

Steve

zippy · February 2008

Thats great thanks. On the income statement where do you show it?

peugeot · February 2008

You would just off-set it against the Tax charge in the income statement.

Steve.

zippy · February 2008

Oh right, easier than I thought!

Thanks for your help.

Corporation Tax - Over provision b/fwd

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