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Hi

if my profit before tax (accounting) is 10,000 but taxable profit is 14,000 on the face of my Income statement, considering tax is at 20%

should it look like

1)

PBT 10,000

LESS TAX @ 20% = 2000

PAT = 8000

2) PBT 10000

LESS TAX @ 20% on 14000 = 2800

PAT = 7200

What will be the accounting entry?

Replies (4)

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By Craigie_Bhoy
08th Apr 2014 13:59

Tax is paid on the taxable profit (PCTCT in my day).

Tax payable would therefore by 2,800

Accounting entry

DR CT P&L/Income Statement

CR CT creditor in the balance sheet.

Depending on the nature/materiality of the difference betwen the 10,000 and the 14,000, you may want to account for deferred tax.

Thanks (0)
Replying to SteveHa:
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By gutsychyk
08th Apr 2014 15:41

okay if the difference is due to a capital asset , for example a computer desk, what will be the double entry?

and if the difference is due to entertainment expenses being disallowed, how will I account for that?

your reply would be highly appreciated,

Thanks (0)
Stepurhan
By stepurhan
08th Apr 2014 15:51

Different differences

This isn't the real world is it? In fact, this is looking a lot like a homework assignment. You need to think these things through for yourself. If you put forward what you think to be correct, and your reasoning, then I'm happy to confirm or assist by correcting. I'm not just going to do your work for you. You won't get help in exams, so relying on it now is doing you no favours.

Here's a hint as to what to look for in your study books. Permanent or temporary difference?

Thanks (2)
By johngroganjga
08th Apr 2014 17:17

I suggest you calculate the deferred tax liability of your hypothetical company and then reconcile the tax charge (including the movement in deferred tax) in the profit and loss account with your pre-tax (accounting) profit.

If you then want to post the results of your endeavours people will be glad to comment. 

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