Example
of over provision
Tax is calculated by the management is not final and
actual tax payment may be less or over than tax provision. When actual tax paid
is less than tax provision then it is called over provision.
Example
of over provision
Profit for the
year 2001
|
20,000 $
|
Tax Rate
|
20%
|
Actual Tax
paid next year
|
3,500 $
|
Calculate
the over provision?
Solution
Profit during
the year
|
20,000 $
|
Provision for
Tax Rate 20% of 20,000
|
4,000 $
|
Over provision
( 4,000-3,500)
|
500
$
|
What
is accounting Treatment of over provision
|
Particulars
|
Dr.
|
Cr.
|
|
Provision
Tax A/C
|
500 $
|
|
|
Income Statement A/C
|
|
500 $
|
This treatment may be expressed by reducing the
current year income tax charge. It means that over provision reduces current
year tax expense. This concept explained below
Profit for the
year 2002
|
30,000 $
|
Tax Rate
|
20%
|
Provision
Required
|
6,000 $
|
Provision made
(6,000- 500)
|
5,500 $
|
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