A company's income tax liability for the previous year was estimated at £31,000. It was settled during the current year for £33,200. The estimated income tax for the current year is £38,000. What is the income tax expense in the statement of profit or loss for the current year?

Correct answer: D) £40,200

Explanation

The previous year's estimate of £31,000 was £2,200 too low (£33,200 - £31,000), an under-provision. This is a change in estimate and is added to the current year's charge. Tax expense = £38,000 + £2,200 = £40,200. The liability in the statement of financial position is the current year estimate of £38,000.