Walnut Limited has a new and inexperienced financial accountant who insists that an estimate of current income
Question:
Walnut Limited has a new and inexperienced financial accountant who insists that an estimate of current income corporate tax should not be processed in its financial statements for the year ended 31 December 2021. His reasoning is that the official 2021 tax assessment has not yet arrived and he believes that it is only once this official assessment has been received that the amount will be known and liability can be recognized. Current income tax has not yet been processed in Walnut Limited’s current 2021 financial statements. The auditors are therefore requesting that Walnut Limited include the following in the 2021 financial statements:
Current income tax of R80 000 in respect of 2021.
Required:
Explain by a way of a discussion of the relevant definitions and recognition criteria whether or not a liability and expense should be recognized.
