Thursday, 11 December 2014

Example of over provision

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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