ACCA Applied Skills · Financial Reporting · Taxation
Brelin Co has a tax rate of 25%. Its statement of financial position at 31 December Year 3 showed an income tax payable of $40,000 as the estimate for Year 3. In Year 4 the liability was settled at $46,000. The estimate of tax on Year 4 profits is $52,000. What is the income tax expense in profit or loss for Year 4?
The Year 4 income tax expense is $58,000. It comprises the current year estimate of $52,000 plus the $6,000 under-provision from Year 3, being the $46,000 settled less the $40,000 originally provided.
- A$52,000
- B$58,000Correct
- C$46,000
- D$98,000
Explanation
The Year 3 under-provision is 46,000 - 40,000 = 6,000, charged in Year 4. Total expense = 52,000 + 6,000 = 58,000. Option $52,000 ignores the under-provision; $46,000 uses the settlement only.
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