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Provision for tax is shown as current liability under short-term provisions in the balance sheet of a company.
  • a)
    True
  • b)
    False
  • c)
    Partially true
  • d)
    Can't say
Correct answer is option 'A'. Can you explain this answer?
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Provision for tax is shown as current liability under short-term provi...
Explanation:

Provision for tax is the amount set aside by a company to pay for the taxes that it is liable to pay to the government. This provision is created by the company based on its estimated tax liability for the current financial year. The provision for tax is shown as a current liability under short-term provisions in the balance sheet of a company.

Here are the reasons why the answer is true:

1. Definition of current liability: A current liability is a debt that is expected to be paid off within one year or the operating cycle of a business, whichever is longer. Provision for tax is a current liability because it represents the amount of tax that the company expects to pay within the current financial year.

2. Classification of short-term provisions: Short-term provisions are those liabilities that are expected to be settled within one year or the operating cycle of a business, whichever is longer. Provision for tax falls under the category of short-term provisions because it is a liability that is expected to be settled within one year.

3. Accounting treatment: Provision for tax is created by debiting the profit and loss account and crediting the provision for tax account. When the actual tax liability is paid, the provision for tax account is debited, and the bank account is credited. This accounting treatment confirms that the provision for tax is a current liability.

In conclusion, provision for tax is shown as a current liability under short-term provisions in the balance sheet of a company.
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Provision for tax is shown as current liability under short-term provisions in the balance sheet of a company.a)Trueb)Falsec)Partially trued)Cant sayCorrect answer is option 'A'. Can you explain this answer?
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