Question

An extract from Leigh plc’s income statement for the year 31 December 20X2 is provided below:

Revenue 140

Expenses (excluding tax) (106)

Profit before tax 34

The notes to Leigh plc’s financial statements provide the following information:

• - Revenue for the year included a grant received from the government for an amount

  of £8 million, which is not taxable.

• - Expenses for the year included a restructuring expense of £10 million related to a

  restructuring plan announced by Leigh plc on 11 December 20X2. No cash payments were made by Leigh plc during the year in relation to the restructuring expenses, therefore a provision of £10 million was recognised on Leigh plc’s statement of financial position at 31 December 20X2. Restructuring expenses are not tax-deductible until they are paid in cash.

• - A current income tax liability of £3 million was reported on Leigh plc’s statement of financial position at 31 December 20X1.

• - Leigh plc paid income tax of £5 million in cash during the year ending 31 December 20X2.

• - The statutory tax rate is 20%.

  Required:

  Showing all workings, compute the following items to be recognised on Leigh plc’s financial statements for the year ended 31 December 20X2:

1. Current income tax liability.

2. Deferred tax assets and/or liabilities.

3. Income tax expense.

Answer 1

Please find the answers via attached chart

Computation of Income tax Liability
Particulars	Legends	Amt
Revenue	A	140
Less Expenses	B	106
Profit Before Tax	C = A - B	34
Less: Grant Received from Govt. which is not taxable, added in revenue	D	8
Add: Restructuring Expenses provision which has been added in expenses, but it is allowed to deduted only if paid in cash basis only	E	10
Revised - Profit before Tax	F = C -D + E	36
Current Income Tax Liability	G = F *20%	7.2
Opening Tax Liability	H	3
Paid Income Tax During The Year	I	5
Net Tax Expenses	J = G+H - I	5.2