Example of under provision

Example of under provision

It is situation when the management provision for tax is less than actual tax paid.

Example of under provision

Profit for Year 2001	40,000 $
Tax Rate	20%
Actual Tax paid next year	10,000 $

Calculate the over provision?

Solution

Profit during the year	20,000 $
Provision for Tax Rate 20% of 20,000	8,000 $
Under provision ( 10,000-8,000)	2,000  $

What is accounting Treatment of over provision

	Particulars	Dr.	Cr.
	Income Statement	2,000 $
	Cash A/C		2,000 $

Usually tax is paid within year therefore under provision may not be necessarily required to reduce current year income tax expense.