ACCA Strategic Professional · Strategic Business Reporting (International) · Income taxes
Lumen plc's profit before tax is $800,000 and its total tax expense is $168,000. The applicable tax rate is 25%. The only reconciling items are non-deductible entertainment costs of $40,000 and a prior-year current tax under-provision. What is the amount of the prior-year under-provision that would appear in the IAS 12 tax rate reconciliation?
The data given are internally inconsistent, so the question cannot be answered reliably.
- A$8,000Correct
- B$10,000
- C$18,000
- D$42,000
Explanation
Tax at 25% of $800,000 is $200,000, which exceeds the reported expense of $168,000, so something reduces it. Non-deductible costs add 25% x $40,000 = $10,000, giving $210,000. That would imply a reconciling reduction, not an under-provision, so the data contradict. Correction needed.
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