Advanced financial accounting - Lecture 24: Limited companies

Advanced Financial
Accounting
FIN-611
Mian Ahmad Farhan
Lecture-24
Limited Companies


Basic Scenario
5% Debenture
Opening balance
Issued during the year
Closing balance

Amount
25,000
20,000
45,000


Scenario-1
Issued debenture on opening date Rs. 45,000.
Interest on debenture = 45,000 x 5% = 2,250


Scenario-2
Issued debenture on mid of the year.
Interest on debenture = 25,000 x 5%

= 1,250

= 20,000 x 5% x 6/12 =

500
1,750


Basic Scenario
5% Debenture
Opening balance
Redemption
Closing balance

Amount
25,000
(15,000)
10,000


Scenario-3
Redemption of debenture on opening date .
Interest on debenture = 10,000 x 5%

= 500


Scenario-4
Redemption of debenture on mid of the year.
Interest on debenture = 10,000 x 5%
= 500
= 15,000 x 5% x 6/12 = 375

875


Scenario-5
Redemption of debenture on closing date
Interest on debenture = 25,000 x 5%

= 1,250


Income Tax


Journal Entries
Interest expense paid
Interest Exp. A/c
xxx
Bank A/c
xxx
Interest payable
Interest Exp. A/c
xxx
Interest payable A/c xxx


Income Tax Expense
1. Current Tax
2. Deferred Tax

Current Tax
1.
2.

Tax on current year’s tax profit
Based on estimates


Deferred Tax
To create deferred tax liability
Deferred tax Exp. A/c xxx
Deferred tax liability A/c xxx
Increase in deferred tax liability
Deferred tax Exp. A/c xxx
Deferred tax liability A/c xxx
Decrease in deferred tax liability
Deferred tax liability A/c xxx
Deferred tax Exp. A/c xxx


Income Tax Expense in Income Statement
Current Tax
Provision of tax current year

xxx

Add under provision
OR
Less over provision

xxx
(xxx)
xxx

Deferred tax
Add increase in deferred tax liability
OR
Less increase in deferred tax liability
Expense for the year

xxx
xxx


Balance sheet
Current liability

Provision for tax current year

Non current liability

Deferred tax liability