Based on the following information, how much was the income tax paid in the year

Question

Based on the following information, how much was the income tax paid in the year 2015? Hint: write down the formula that connects income tax expense to income tax paid and deferred tax assets and liabilities to solve it.

2015

2014

Deferred Tax Asset

$95,000

$65,000

Deferred Tax Liability

$125,000

$105,000

Income tax expense from income statement

$200,000

$200,000

$180,000

$305,000

$210,000

2015

2014

Deferred Tax Asset

$95,000

$65,000

Deferred Tax Liability

$125,000

$105,000

Income tax expense from income statement

$200,000

Explanation / Answer

Let x be the income tax paid in the year 2015.

Income tax paid is the income tax calculated on the income as per IT Act.

Deferred Tax asset / liability is the difference between the income tax as per income tax act and the income tax as per books of account.

Deferred Tax asset arises where income tax expense as per income tax act is greater than that of books of account.

Deferred Tax liability arises where income tax expense as per books of account is greater than that of income tax act.

So we can say that,

Income Tax as per IT Act = Income tax expense from income statement + Deferred Tax Asset – Deferred Tax Liability

This implies,

x = $200000 + ($95000 - $65000) – ($125000 - $105000)

x = $200000 + $30000 - $20000

x = $210000

Income Tax paid in the year 2015 = $210000

Correct option is $210000

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