The balance sheets of Yello Ltd show:
31 December
2015 2016
Current tax liability $30 000 $40 000
The income statement for the year ended 31 December 2014 shows:
Income tax expense $40 000
What amount in respect of income tax will appear in the statement of cash flows for the year ended 31 December 2016,assuming tax is paid annually in arrears and there are no over or under provisions of tax.

Question

Quizplus · Accepted Answer

Since tax is paid annually in arrears, the current tax liability of $40,000 on the balance sheet at 31 December 2016 is likely to relate to the income tax expense in the income statement for the year ended 31 December 2015. Therefore, the amount of income tax that will appear in the statement of cash flows for the year ended 31 December 2016 is $30,000, being the increase in the current tax liability from $30,000 at 31 December 2015 to $40,000 at 31 December 2016. The income tax expense of $40,000 in the 2014 income statement is not relevant as it relates to a previous year.

The Balance Sheets of Yello Ltd Show