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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

Kestrel Ltd's draft financial statements show a profit before tax of $480,000. The income tax estimate for the year is $112,000. In the previous year the tax charge was under-estimated and the final liability was $9,000 higher than the amount provided. What is the income tax charge in this year's statement of profit or loss?

The charge is $121,000. The current year estimate of $112,000 is added to the $9,000 under-provision from the previous year, because the shortfall is corrected through this year's statement of profit or loss rather than by restating the prior year.

  1. A$103,000
  2. B$112,000
  3. C$121,000Correct
  4. D$9,000

Explanation

The current year estimate of $112,000 is increased by the $9,000 under-provision from the prior year, which is charged in the current year: 112,000 + 9,000 = $121,000. Deducting the $9,000 (giving $103,000) treats an under-provision as an over-provision.

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