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

Vega Co has a profit before tax of $350,000 before accounting for the following. The year-end tax estimate is $84,000. The opening ledger shows a credit balance on the income tax account of $60,000 for the prior year, and during the year the prior year's liability was settled by a payment of $55,000. The company also has 8% loan notes of $250,000 in issue throughout the year, on which no interest has yet been recorded. What is the profit for the year after tax?

Profit for the year is $251,000. Deduct $20,000 loan interest from $350,000 to get $330,000, then deduct tax of $84,000 reduced by the $5,000 prior year over-provision, giving a charge of $79,000. The result is $330,000 minus $79,000.

  1. A$246,000
  2. B$251,000Correct
  3. C$256,000
  4. D$261,000

Explanation

Finance cost is 250,000 x 8% = $20,000, giving profit before tax of 350,000 - 20,000 = $330,000. The prior year over-provision is 60,000 - 55,000 = $5,000, a credit. Tax charge = 84,000 - 5,000 = $79,000. Profit after tax = 330,000 - 79,000 = $251,000. Ignoring the interest gives $266,000-$5,000 type errors; omitting the over-provision gives $246,000.

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