Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 13 

KAPLAN PUBLISHING

231 

If there is an underestimate in the prior year (i.e. estimate was less than the 

amount paid) there will be a closing debit balance carried forward. This is 

adjusted as follows: 

Dr Income tax charge 

$X 

Cr Income tax liability 

$X 

As the company underestimated, the charge for the following year is increased 

by the appropriate amount, so that over the two-year period, the correct charge 

has been recorded. 

Accounting entries – Further explanation 

In simple terms, 

the income tax liability on the statement of financial 

position should only ever be equal to the estimate of the tax liability 

at the end of the year.

 (The under/over provision from the prior year 

should have been sorted out well before the year-end). 

The charge to the statement of profit or loss can be calculated as follows: 

$000

Current tax estimate 

X 

Under/(over) provision in prior year 

X/(X) 

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Total income tax charge for the year 

X 

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