Entry for tax in A/c

neethu joy We have paid advance tax of Rs 150000 and  liablity is 275000 and balance rs 125000 is debited to provision and credited to bank account in that he has just added  penalty rs 5000 which is arbitrary

  Ok Shivram

Is this entry is correct

I conclude from ur Answer

Prov. for Tax    70000 (L.Y.)

Prov. for tax( Short) 205000

To Adv. Tax     150000

to Bank           125000

and Bal. in Prov. a/c will be tr, to P& L Appropriation a/c at the end of the Year

Thanks to All

Ritesh Sir ,

Thanks I am Also correcting with your entries.

In the first year entry wud be

Profit & Loss  Ac  70000

To Provision for TAx   70000

Advance tax 150000

To Bank     150000

In CAse of settlement

Profit & Loss Account   205000

Provision fot TAx            70000

To Income tax Payable           125000

To Advance TAx                         150000

In the year of payment

Income Tax payable    125000

To BAnk                         125000

Provisions for Income Tax for current year or earlier years may be adjusted below the line or to Profit and loss Appropriation Account.

As per AS 5 Para 7 & 8, it is an extra ordinary item & it should be adjusted in the year in which it arises. So additional provision of Rs. 2,05,000/- will be created in FY 09-10.

Entry

1. P/L A/c   Dr.      2,05,000

   To Prov. for Tax       2,05,000

So total povison became Rs. 2,75,000 (including provison created in FY 08-09)

2. Provison for Tax  Dr.   2,75,000

             To Advance tax             1,50,000

             To Bank                          1,25,000

3. If any interest or penalty is paid then it will be charged to P/L A/c. But it is not an allowable exp. as per IT Act.

Yes.I agree with you.....But the shortfall in provision for the FY:2008-09 will be created in the FY:2009-10 at below the line .....(P/L Approp. A/c)

Regards,

Joydip Chaubey