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- For a reporting period, current tax liability and income tax expense may not be same due to Deferred Tax Asset (DTA) or Deferred Tax Liability (DTL). DTA or DTL may arise due to account on temporary adjustment arising due to difference in Tax accounting and Actual Accounting.
Eg. The Profit before depreciation is 100000. The depreciation as per books is 20000 and depreciation as per Tax is 30000. Tax Rate is 30%.
Ans. In this case Current Tax Liability will be 21000 ((100000-30000)*30%). However, the Income Tax Expense will be 21000+3000(10000*30% i.e. DTL) is equal to 24000.
- Example of Prior Period Errors:
Alpha Inc. in 2019 had incorrectly charged Building for Advertisement Expense amounting to 100000. The mistake was identified in 2018.
Correction Entry
The correction entry will be made by debiting the Retained Earnings account and crediting the Building Account.
Retained Earnings Debit 100000
Building Credit 100000
- Event to be classified under adjusting event only if the events had occur after reporting period and sufficient appropriate evidences related to the event were existing at the balance sheet date. Otherwise, it will be non-adjusting event and only disclosure will be required.
- This event will be non-adjusting event and only disclosure would be required. Reason being, though the storm occurred after the reporting period in July, there were no sufficient evidences were available related to storm on the balance sheet date.
- This event will also be non-adjusting event and only disclosure would be required. Reason being, though the storm and lawsuit against company occurred after the reporting period in July and August, there were no sufficient evidences were available related to storm and lawsuit against company on the balance sheet date.
Please feel free to comment any point wherever there is disconnect.
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