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.

Example of Rent Revenue

Example of Rent Revenue

According to the international financial reporting standards revenues arise from the normal business activates. Rent can be revenue, following example explain rent as revenue

Example of Rent as Revenue

MR. Ali constructed a five stories building that have 50 residential flats. Mr. Ali built this building with a view for a fixed monthly rental income. During the year only 30 flats were hired @ 15,000 and Ali expects that remaining flat would be hire in next year. Calculate the rental income. Mr. Ali sold another building for 200,000 which had a net book value of 80,000.

Solution

Revenue can be recognized only against the benefit received during the year, there is no recognition for the future income, therefore income of only 30 flats will be recognized.

Revenue (Rental Income)	450,000
Building Sold Gain  ( 200,000-80,000)	120,000
Income	570,000

Gain =Sale proceed of asset minus net book value of asset.

Examples of Fees Revenue

Examples of Fees Revenue

There are number of business which provides services and charge the fees for their services. This fees in revenue for those institution under international Financial reporting Standards. Following are the famous examples of those services

1.      Hospital charge fee from the patients

2.      Lawyers firm charge fee from the clients

3.      Chartered account firm charge fee for the financial services

4.      Universities charges fee for the tuition provided.

Example of Fees as Revenue

Health and Heath hospital accounts shows that during the year 10,000 patient visited and each patient was charged $ 40. Calculate the revenue of the Hospital. Hospital also sold a furniture at 30,000 which had a net book value of 22,000

Solution

According to definition of revenue is income which arises from the normal business activities and gain arise from other activities. The sale and gain are both income

Revenue (Fees)	400,000
Gain on Sale  ( 30,000-22,000)	8,000
Income	408,000

Gain =sale proceed of asset minus net book value of asset.

Example of Sale as Revenue

Example of Sale as Revenue

ABC Company is carrying out a business of selling and buying shoes. The company has purchased $ 200 and sold them during the year at price of $ 300. Company also sold at 10,000 which net book value was 8000. What is the revenue of the organization?

Solution

According to definition of revenue is income which arises from the normal business activities and gain arise from other activities. The sale and gain are both income

Revenue	$ 300
Gain  ( 10,000-8000)	$ 200
Income	$ 500

Gain =sale proceed of asset minus net book value of asset.

Example of Decrease Liability Income

Example of Decrease Liability Income

According to income definition the decrease in liability that would result in increase in equity of the entity would be treated as income. The following example would explain this concept

ABC Company made a purchase of $ 200 and amount is payable after six month .After two months  supplier offered a discount of 2% on early payment.

Solution

The amount of discount $ 4 is income for the organization because it would decrease the liability by $ 4 and now organization has to pay $ 196 instead of $ 200. This $ 4 would increase the profit and ultimately increase the equity.

Journal Entry

Date	Particulars	Dr	Cr
	Supplier A/C	4
	Discount A/C		4

Example of Bad debt recovered income

Examples of Bad debt recovered income

Bad debt previously written off is recovered of $ 200 is income because it would add asset (increase cash) and according to definition the asset increase which would result in equity increase is income. The income is charged to a period in which it is recovered.

Profit Calculation

Profit	1,000
Bad debt recovered	200
Total profit	1,200

Equity

Paid up Capital	1,000
Profit	1,200
Equity	2,200