The following data was extracted from Pepsi PLC and Cola PLC:
Pepsi PLC Cola PLC
Profit before tax for the year ended 31 March 2017 1 300 000 136 000
Taxable income for the year ended 31 March 2017 340 000 150 000
Deferred tax liability as at 1 April 2016 — 90 000
Deferred tax asset as at 1 April 2016 — 15 000
Taxable temporary differences as at 31 March 2017 960 000 306 000
Deductible temporary differences as at 31 March 2017 — 70 000
All taxable and deductible temporary differences relate to the profit or loss. Assume a corporate tax rate of 30%.
Required to prepare the income tax section of the statement of profit or loss and other comprehensive
income for the year ended

To prepare the income tax section of the statement of profit or loss and other comprehensive income for the year ended 31 March 2017 for Pepsi PLC and Cola PLC, we need to calculate:

1. **Current tax expense**: Based on the taxable income and corporate tax rate.
2. **Deferred tax expense**: Derived from temporary differences (both taxable and deductible).

### 1. **Current Tax Calculation**

The current tax is calculated as the corporate tax rate applied to the taxable income:

\[
\text{Current Tax} = \text{Taxable Income} \times \text{Tax Rate}
\]

- **Pepsi PLC**:
  \[
  \text{Current Tax} = 340,000 \times 30\% = 102,000
  \]

- **Cola PLC**:
  \[
  \text{Current Tax} = 150,000 \times 30\% = 45,000
  \]

### 2. **Deferred Tax Calculation**

Deferred tax is based on the temporary differences (both taxable and deductible). We calculate the deferred tax for both Pepsi and Cola as follows:

- **Deferred tax for taxable temporary differences**:
  \[
  \text{Deferred Tax (Liability)} = \text{Taxable Temporary Difference} \times \text{Tax Rate}
  \]

- **Deferred tax for deductible temporary differences**:
  \[
  \text{Deferred Tax (Asset)} = \text{Deductible Temporary Difference} \times \text{Tax Rate}
  \]

#### 2.1 **Deferred Tax for Pepsi PLC** (since it has taxable temporary differences only):

- **Taxable temporary differences** = 960,000

  \[
  \text{Deferred Tax (Liability)} = 960,000 \times 30\% = 288,000
  \]

#### 2.2 **Deferred Tax for Cola PLC**:

- **Taxable temporary differences** = 306,000

  \[
  \text{Deferred Tax (Liability)} = 306,000 \times 30\% = 91,800
  \]

- **Deductible temporary differences** = 70,000

  \[
  \text{Deferred Tax (Asset)} = 70,000 \times 30\% = 21,000
  \]

Now we adjust for the deferred tax balances as of 1 April 2016 to determine the total deferred tax expense for the year:

- **Cola PLC (Net Deferred Tax Movement)**:

  - Deferred tax liability as at 1 April 2016 = 90,000
  - Deferred tax liability as at 31 March 2017 = 91,800
  - Deferred tax asset as at 1 April 2016 = 15,000
  - Deferred tax asset as at 31 March 2017 = 21,000

  **Net Deferred Tax Liability Movement**:
  \[
  \text{Deferred Tax Expense} = (91,800 - 90,000) - (21,000 - 15,000) = 1,800 - 6,000 = -4,200
  \]
  So, there is a net deferred tax benefit of 4,200 for Cola PLC.

### 3. **Total Income Tax Expense**

Now, we combine the current tax and deferred tax to determine the total income tax expense:

#### 3.1 **Pepsi PLC**:
- Current tax: 102,000
- Deferred tax: 288,000

  **Total income tax expense** = 102,000 + 288,000 = 390,000

#### 3.2 **Cola PLC**:
- Current tax: 45,000
- Deferred tax: (4,200) (since it's a benefit)

  **Total income tax expense** = 45,000 - 4,200 = 40,800

### Final Result:
Here’s the breakdown of the income tax section of the statement of profit or loss and other comprehensive income:

| Company      | Current Tax | Deferred Tax | Total Income Tax Expense |
|--------------|-------------|--------------|--------------------------|
| Pepsi PLC    | 102,000     | 288,000      | 390,000                  |
| Cola PLC     | 45,000      | (4,200)      | 40,800                   |

Would you like further details or clarifications on any part of this calculation?

### Related Questions:
1. How does deferred tax impact the financial statements over multiple periods?
2. What are the key differences between taxable and deductible temporary differences?
3. How is deferred tax liability treated in financial reporting?
4. Why is it important to distinguish between current and deferred tax?
5. How does the corporate tax rate affect the calculation of deferred taxes?

### Tip:
Deferred taxes reflect timing differences between accounting profits and taxable profits, helping to smooth out the impact of these differences over time.

The following data was extracted from Pepsi PLC and Cola PLC: Profit before tax for the year ended 31 March 2017: Pepsi PLC - 1,300,000, Cola PLC - 136,000; Taxable income for the year ended 31 March 2017: Pepsi PLC - 340,000, Cola PLC - 150,000; Deferred tax liability as at 1 April 2016: Pepsi PLC - 0, Cola PLC - 90,000; Deferred tax asset as at 1 April 2016: Pepsi PLC - 0, Cola PLC - 15,000; Taxable temporary differences as at 31 March 2017: Pepsi PLC - 960,000, Cola PLC - 306,000; Deductible temporary differences as at 31 March 2017: Pepsi PLC - 0, Cola PLC - 70,000. Assume a corporate tax rate of 30%. Required to prepare the income tax section of the statement of profit or loss and other comprehensive income for the year ended.

Explore the detailed process of calculating the income tax section of the statement of profit or loss for Pepsi PLC and Cola PLC for the year ended 31 March 2017. This includes the computation of current tax and deferred tax, taking into account taxable and deductible temporary differences. Ideal for undergraduate finance students and professionals.

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