hello guys in this video we will be finishing the chapter capital structure and finance course of chapter 13 ACC so before watching this video make sure that you watch the previous video and if you haven't watched it yet check the description box below and I have linked the part one and I have also linked all the playlists if you would like to solve the exam kit I have linked the playlist of that also in the description box below so in the previous part we had discussed till here so we saw what a share is we saw what are the ways using which a company can raise finance and we saw what Equity Shares are and we saw what preference Shares are and okay take a moment and read this okay so now we will be doing the journal entries and we will be solving all the questions which are there in the book so before starting let's see this now we know what a share capital or what share Capital really means let's talk about what issued share capital is called up share capitalists and paid up share capital is okay so first think about it logically when a company raises money using share Capital what will the journal entry be so when I am raising company if I am a company and if I am raising company then money will come into my business so it is going to be debit cash anyway because cash is increasing in my business right so this is my basic journal entry debit cash credit share Capital keep this in your mind we know that share Capital we know what share capital is and if we are raising money using the shares then this will be our journal entry debit check debit cash credit share Capital why are we debiting cash because cash is increasing because I am raising money and whenever my asset increases it becomes debit okay now let's discuss a little bit about what phase value is now there is something called as the face value of a share the face value is the actual value of a share if I say that the face value of my share is four dollars then this would be the face value of my share so now there are ways using which you can raise money so when you're talking about shares keep one thing in your mind shares can never be raised on discount we can never issue shares on discount what do you understand by discount discount is something which is less than the face value of the share so if my Share value is 4 if my face value of my share is four dollars I it cannot issue it for a price which is lesser than four dollars why because we cannot issue shares on discount okay now we have just discussed what face value really means okay so now what is issue chair Capital so a company has a number of you know shares which they'll be ready to issue to the public which they would like to issue to the public which they would like to raise from the public so that would be the issued share capital issued share capital is the share Capital that has actually been issued to shareholders so companies sets aside a particular amount which it should it would be raising from the shareholders so that amount which it is keeping aside to raise it from the shareholders that amount is known as the issued capital okay now what do you understand by called up so let's assume that the shared let's assume that 10 000 shares and of rupees or let's say of rupees ten dollars each this is the issued capital I would like to have this much issued capital I know that this is the issued capital and what do you understand by called up called up is how much money I am calling from the shareholders right now I am issuing entire 10 dollars per share but right now I require only five dollars per share so at this moment I am calling up only five dollars and on a future date I will be calling up the rest of the five dollars okay so that is what called up means so called up means the amount I'm requiring right now how much I will be calling right now so it can be anything I can ask for eight dollars now and I would ask you to pay the two dollars maybe next time right now I need this much only in the end you will be paying me ten dollars but at this moment I'm calling up only eight dollars what does paid up mean that simple now paid up is something what actually a person pays if I have called up eight dollars but the shareholders have given me only two dollars so how much is paid up two dollars how much I have called for eight but how much will the actual issued capital A worth was the face value it was 10. okay so called up share capital is the amount of the nominal value which is paid by the shareholder what is paid up share Capital paid up share capital is the amount of the nominal value which has been paid at the current date okay always remember in the share Capital account the face value or the nominal value of the share only comes so whenever in the journal entry you have the share Capital account you will always have the face value of the share no matter what the situation is keep that in your mind okay make sure that you are writing these journal entries because it is important for you to make a note of this okay now tell me if I am raising a cap if I'm raising 10 000 shares of dollar 10 each what will be my journal entry debit cash credit share capital with what value how much money I have raised ten thousand multiplied by ten right 10 000 shares multiplied by ten dollars each always face value will only go in my share capital in this situation it's okay 10 000 shares multiplied by ten dollars each so debit cash to credit share capital okay clear now tell me something there is something called as a premium now what do you understand by the word premium if the face value or the nominal value of my share price is let's say five dollars okay and I am if there are so many people who would like to buy the share where I don't have those many shares to sell I want to sell them at five only so what will I do in such a situation people are so desperate to buy my shares people really want to buy this company shares so people are willing to pay extra money just to take the share because there is so much of demand for the share there are so many you know buyers in the market so people are willing to pay extra or they are willing to pay a premium to acquire the share right in such a situation I can charge premium from my buyers I can charge extra money from the shareholders right so that is what is known as premium so since there is so much demand this five dollars is the face value but since there is so much demand I will be now increasing the price the face value will always remain 5 only but I can increase the money why because there's a lot of demand so now I am charging six dollars per share the face value is five dollars per share but I am charging six dollars because of the premium so what will the journal entry be think about it carefully debit cash why debit cash because cash is coming in credit equity share capital okay now tell me what did I tell you in the equity share Capital we will always always be writing the face value so tell me what will come here how many shares 10 000 shares right what is the face value 10 000 shares multiplied by five dollars five dollars okay so always in the account of share Capital the value will always and always be of the face value or the nominal value now how much cash has actually been raised you got a premium you got six dollars for for 10 000 shares so six multiplied by ten thousand okay now is it balancing is the debit in credits are balancing here we have six multiplied by ten thousand here we have five multiplied by ten thousand so there is one multiplied by ten thousand which is extra what are you going to do why is it extra in the first place because in the share Capital we can always have only the face value so what will you do now Security Premium you are going to open an account of credit and account Security Premium and whenever you charge any premium you put that in the Security Premium I hope you understood take a moment and revise it if you can't understand what I just discussed if I am charging premium on my share the excess money which I will be receiving the excess money will go into the security premium account okay and in share Capital we will always be having the face value okay I hope you got what we discussed so far so let's go back to the book okay let's do the question bourbon company issued 200 025c shares okay 25c is nothing but 25 cents which is 0.25 at a price of 1.75 each take a moment and try to solve it I'll discuss in a second okay let's read the question bourbon company issued two hundred thousand twenty five seashells at a price of 1.75 each so what is the face value the face value is 25 C it is clearly mentioned over here 25c shares so that is the face value 1.75 is at what you basically um gave in the market so 1.75 is more than 0.25 that means that a premium has been charged you know the journal entry now now try solving it debit cash credit share capital just a second debit cash credit Capital share capital and credit Securities premium okay rule Remains the Same in share Capital always the face value goes the face value is this much right so what will it be 0.25 0.25 0.25 multiplied by 200 000 shares okay now how much cash has actually been received how much has actually been received we received 200 000 shares 1.75 has actually been received how much excess has been received Security Premium how much excess has been received you received an excess of how much 0.25 was my face value 1.75 was what I actually asked for so my access would be the subtraction what is the subtraction of 1.75 minus 0.25 1.5 okay 1.5 I hope you got the answer got it so what did we do basically we in the share capital account always the face value only comes and in these the X's which we have charged that comes under the security premium account okay now we are starting with something called as rights issue so what do you understand by rights issue the existing shareholders who are already there who already have a share from of my company in the existing shareholders they I give them a right that they can take newer shares for lesser price so that is an advantage which I am giving to the existing shareholders for example if a person already has eight shares then they would be getting two more at a price which is lesser than the market price you get it the market price is 20. I can give you at rupees 18 only you get it so they can buy it from me at 18 and sell it at 20 in the market so that is what is rights issue so what do you understand by rights issue the offer of new shares to existing shareholders in proportion to their existing shareholding add a stated price normally below the market price so there are various advantages for rights issue why do we actually do rights issue to raise money and if my companies know that famous if it's not that well known the new people might not want to buy the shares of my company but then if I have some existing shareholders and if I would want them to you know buy my shares they might be interested to buy because they already have interest in our company and they have already invested their money in our company you get the point so that is what is known as rights issue rights issue mean in a particular defined proportion you give new shares to the existing shareholders at a price which is lower than the market price a rights issue is the cheapest way for a company to raise Finance a rights issue has a greater chance of success I told you why because of the interest which they already have in a company now what are the disadvantages of Rights issue is more expensive than issuing that obviously equity it may not be successful sometimes it will not be successful a rights issue is accounted for in the same way as normal is share issue and therefore has exactly the same impact on the financial position okay now there is one small formula you need to keep in mind whenever you are solving the rights issue question I hope you are writing everything down and solving the questions along with me okay so when you're talking about rights issue total number which has of shares which has been issued divided by total which the shareholder already possesses multiplied by extra which now we are giving them when you do this you get the number of new issued shares I know it's confusing right now but when we solve the questions you will be clear with it okay for example if the total issued Shares are thousand okay and I am giving a rights issue for a person who has five shares I give them one extra so for every five shares I'm giving one extra so five he already has one is the extra I am giving and thousand is the issued total okay what will be the formula total number so 1000 is the total issue shares how much he already has he already has five how much extra we are giving we are giving him one so this formula will give you the new issued shares when we do the question you will be clear with it okay let's do the test understanding too upon incorporation in 2004 JD company a limited liability company issued 1050 C shares again 50c is 50 Cents which is 0.50 dollars needing further funds in 2005 it made a rights issue of 145 at 0.75 the offer was fully taken up now what are the accounting entries which are required take a moment and solve it and then check it with me foreign 1050 shares were issued in 2004. that is what is given in the question so what would be the journal entry in 2004 we raise money right and share capital how much what was the amount what was the amount in 2004 this was the face value given in the questions 50 cents so this is what happened in 2004. now let's see what happened in 2005. going back to the question they said in 2005 writes issue of 145 okay what does that mean for every five shares they have given one on a lower price which is 0.75 right you know how to do the working what are the total number of shares 1000 upon how much they already have five if they already if I have five we will give them one more so what is the new number of shares issued 200 shares is the new number or the amount which has been issued okay that's understandable nope they have paid you the extra extra how much have they paid for 200 shares they paid you 0.75 given in the question the paid you at 0.75 each okay now how much is the face value only face value will go into share Capital we know that so how much is the share capital 200 into what was the face value it was 0.5 so that will only go again and the excess will go into the share premium account and share premium account and securities premium account is the same thing so don't worry about that that's it I hope you understood the question okay let's move on now what is bonus issue right now we just studied what rights issue is now let's see what a bonus issue is so what we saw in the rights issue is that if you have this much proportion of shares you get this much precautions of shares on a lesser price on lesser value lesser amount when you talk about bonus what does the word bonus mean bonus means free when we were talking about rights issue we were not giving the existing shareholders new shares for free we were giving them at a lower price but when it comes to bonus issue bonus issue we give them free for example if you have five shares we'll give you two more shares for free which means no money is being charged whereas in rights issue money was still being charged but it was just being charged less so the issue of new shares to existing shareholders in proportion to their existing shareholding no cash is received from making a bonus issue of shares okay I'll explain this to you now whenever we were raising money from share Capital what was the journal entry debit cash is being received the shareholders are giving you cash credit share capital right this was a journal entry but when we are talking about bonus shares what is happening we are giving the shares for free which means they are not paying you for the share so will the cash actually flow into the business no cash will not come because we have given it for free so we will not be debiting the cash account because cash is not coming in instead we will be debiting the share premium account so you understood why am I debiting share premium account we are debiting share premium account because in bonus shares we are giving it for free which means money is not getting being received in the business at all in this transaction so instead of crediting the cash we will instead of debiting the cash we will be debiting the shared premium I hope that's clear okay again this is what we have discussed let's go to the question okay gkl company a limited liability company currently has 20 050 shares in issue each issued for this much so what is the face value face value is 50 Cents which is 0.5 dollars and this is the issue price which is 1.25 and um and makes one for four bonus issue which means for every four shares you're getting one share okay now what are the balances of the share capital and the share premium account so we need to basically just write all the journal entities so what is the first journal entry the initial journal entry when you are raising money debit cash credit share capital okay first how much money will come in the share capital we have 2000 and issue price I mean the face value is 50 Cents and we know that in the share Capital only the face value will come so this is 20 000. multiplied by 0.50 dollars model 0.50 0.50 dollars is 50 Cents and how much cash has been actually received twenty thousand multiplied by issue price was 1.25 so 1.25 which means premium money has been received the face value was just 1.0.50 so we will credit the shared premium because premium has been charged it's going to be 2 20 000. 0.25 is the excess okay this is the first thing what is the next journal entry one is to for bonus issue has been taken place so what was the working note of bonus issue what are the total number of shares twenty thousand what do we already have the person already has four how much extra are we giving one this is the formula which we saw earlier right so what will this be five thousand so what are the number of new shares the new Shares are five thousand I hope you're solving the question along with me so 5000 are the new shares now you got it okay so we know that in bonus issue okay so then what will be the next journal entry we just saw that it would be debit share premium 5000 and you know that whenever you are giving something for free you will obviously give it at the least price possible and what is the least price possible the face value we know that we cannot issue shares at a discount so we can only issue it maximum Max to Max the least price possible would be its face value so we will be issuing it with its face value which is 50 Cents right why are we debitting share premium because we did not get the cash we just discussed that we know how we got this right it it would have been cash and credit share Capital but since this is a bonus issue here we are giving the share for free and cash is not being received that is why we are debiting the share premium instead of okay so then we have credit share capital again it's gonna be five thousand multiplied by the face value 0.5 0 okay now tell me is there any other journal entry after this think about it for a second okay so now what is the question we need to find the balance of share capital and share premium so let's find the balance of share capital in the first journal entry we had this much of share capital in the second journal entry we had this much of share Capital so we have to add this share capital and the share Capital right you got it so 20 do I hope you have a calculator 20 000 multiplied by 0.50 plus 50 000 plus 0.50 so when you add that it is going to be basically 2500 plus 10 000 that would be 12 500 is my share Capital 12 500. so this is my answer now we know that b is my answer because twelve thousand five hundred is not in any other option but we have to still see let's solve the premium also what is the premium balance okay we had a credit balance of this much and here we are debiting it which means we are reducing it from the balance so 20 000 multiplied by 0.25 minus of what you have debited what will that be so the Securities premium will be 15 000 minus 5000 multiplied by 0.5 okay this is going to be 12 500 again so the answer is B okay so I hope you got this next question RIT company is a limited liability company with twenty two hundred thousand twenty five cent shares an issue at first January the balance on the the share premium balance is also given which is 75 000 so basically we need to do the journal entry of everything let's do one by one the first line two hundred thousand twenty five seashells were issued so let's try the normal journal entry what would it be it's the second yeah it would be debit cash credit share capital what is given in the question what is the issue price 200 000 shares of 0.25 dollars each right 200 000 into 0.25 multiply into the totaling by yourself next so we have the share premium balance which is 75 000 let's come to that let's not do anything about it right now let's do this there was a fully taken up two for five rights issue at one point eight zero okay so now we have rights issue 1.80 what was the rights issue the rights issue is let's see that again two for five so for every five shares you are giving them two more at the discounted price or at a lesser price so how what was the what are the total number of this was our formula right what was the total number of shares two hundred thousand upon how much we they already have five how much extra we are giving multiply which is two this is nothing but I hope you are solving it divided by 5 which would be 80 000. so this is 80 000 shares so these are my new issued shares okay what will be the journal entries of this debit cash credit share capital how much in the share capital eighty thousand in share Capital we will always put at the face value what is the face value 0.25 type 0.25 how much cash has actually been received we got 80 000 shares prize money and the issue price was 1.80 so 1.80 was the actual cash so the rest will go into my share premium what was the balance 1.80 minus 0.25 which is 1.55 okay I hope this much is clear now in the starting of the question we had 200 000 shares Now by writes issue we issued 80 000 more so how much are the total shares now we received 80 more so now the total shares are 280 000 right keep this in your mind now then we give one to ten bonus shares okay so for every 10 shares you are giving one free with the formula let's find the new number of shares issued so in this case in the formula what total will you use will you use 200 000 or will you use 280 000 you will always obviously use the new right now the total number of shares are these many so we are going to use 280 000 upon how much they already have how much extra you are giving this is 28 000 shares so my new number of shares would be 28 000 for what for the bonus issue this was the journal entry for bonus issue right this would be 28 000 shares what was the face value 0.25 okay that's it what are the balances on the share capital and the share premium account let's find the balance of share premium though we already in the question it is mentioned that we already had 75 000 share premium balance right so we already had 75 000 balance with us how much have we used in it okay in the second journal entry we increase the share premium by this much by how much 80 80 000 multiplied by one point five five one two four zero zero zero zero so by this much you increase the share premium right you credited it which means you increased now in the last journal entry we used up the share premium for giving the bonus shares how much did we use 280 000 multiplied I hope you're solving it twenty eight thousand multiplied by 0.25 which is seven thousand so you used up 7000 from the same okay now let's find this how much is left this will be 1 lakh 92 000. how much is left 1 lakh 92 000 of the share premium is left okay in the same way try to find the share Capital balance then you can check it with me okay if you go back to the question you will see that the share premium balance is 192. so you already got the answer so you can check this with by yourself okay now what are dividends we know that if somebody holds a share in your company you will give them dividend so if I have a share in a company they will give me the dividend it is kind of like the interest this is something which we have discussed in the previous video as well so dividends represent the distribution of profits to the shareholder they're usually expressed as an amount per share for example 10 percent or 10 cent per share so like that we uh usually Express the dividend dividends on preference Shares are predetermined okay now when I am giving a dividend that is something I am giving to the shareholder so it is kind of an expense to the business and I I have retained earnings so when I have to distribute the dividend I give the dividend from the retained earnings I you you know what retained earnings are so I use the retained earnings to give the dividends so since it is an expense I will do debit retained earnings and since my retained earnings is reducing I will debit it and I will credit my bank since bank money goes out from bank as well this is the payment of dividend I need out in this journal entry payment of dividend debit retained earnings because we are reducing the retained earnings because we are giving away the retained earnings from the uh we are giving away the dividends from the retained earnings and credit bank because money also goes out from the bank okay at the end of the year companies May propose or declare a dividend to the ordinary shareholders this is a final dividend these dividends have to be approved at the annual general meeting and until this point the company have no obligation to pay them therefore proposed dividends at the end of the year that have not been approved by shareholders cannot be recorded as liabilities at the year end okay so there's a difference between proposed dividend and the final dividend until and unless the dividend is um uncle unless the dividend proposal is accepted by the board members till then you cannot record the dividend as a liability in your books okay what is loan notes now low notes is nothing but loan only that we have discussed what are loans non-current liabilities long-term loans so loan stock or loan is just loan so when you take a loan what is the journal entry debit cash because cash comes in uncredit um non-current liability that is what is the general loan uh journal entry so that is the journal entry which you'll use for accounting of the loan node since loan node is a loan which is a non-carnate liability now whenever you take a loan you always pay interest on the loan and you know that interest is a finance charge right so interest is an expense to a business interest on loan is an expense and I will debit the expense so what do I mean by finance charges finance charges is the loans which I pay the interest on the loan the interest which I pay that comes under the finance charges I need to pay a certain amount of charge for taking a loan so debit finance charges why because it is my expense and credit cash or current liabilities cash because cash goes out current liabilities if I haven't paid it yet okay custard creameries is an incorporated business which needs to raise funds to purchase plant and Machinery on 1st March 2005 IT issues 150 000 10 percent loan notes redeemable in 10 years time interest payable half yearly at the end of August and end of February so this is something which is known as interim dividend so what does interim dividend mean interim dividend means that you will have to pay half dividend in the middle of the year half towards the end of the year so you have to pay the dividend two parts over the year that is what is known as interim dividend now let's try to solve this custard Creamery question try to solve it by yourself and discuss it with me and you can check it from me read the question carefully okay so the first journal entry is going to be debit cash and credit loan notes by how much how much loan have you taken 150 zero zero zero one fifty zero zero zero this is a simple journal entry of taking a loan renewable and 10 years of time interest is payable half yearly and at the end a half yearly at the end of August and Feb scientist has always paid half yearly at the end of the August and at the end of the February okay now see this it is mentioned that on 1st March 2005 you took the loan first March which is middle of the year right middle in distance which is not the starting of the year so let's see this we this is December and this is January and this is Feb and this is March so here in March you took the loan so which means you need to pay the interest from March to December you will not be paying for Jan and you will not be paying for Feb so for two months you will not be paying the interest from when you have availed the loan from then only you will be paying the interest which is how many months 10 months so you will be paying interest for 10 months alone okay interest is people half yearly okay so let us first find the interest what is this ten percent loan notes 10 percent is the interest charge rate so what is 10 of 150 000 10 oh sorry ten percent of 150 000 that was the total that is the total interest divided by it which is fifteen thousand okay so fifteen thousand is the interest which I have to pay for an entire year now now tell me I am paying the interest in August and I am paying the interest in February okay for the entire year it is 15 000 so we have calculated in fifteen thousand now what will the journal entry be in August so in the end of the August how much you have to pay you have to pay for the March March April May June July August for the entire one two three four five six months you have to pay in August right the journal entry in August would be debate finance charges and credit cash or accrued whatever it's usually cash how much 15 000 is for the entire year but in August you are paying only for six months so 15 000 multiplied by one by two so half of that you are paying over here okay next payable half yearly at the end of the August and Feb so every August and every Feb you keep paying in the but you are making the books for 2005 December right so what will you write in the book think about it so till August you have already mentioned it in the August journal entry now you have to let's just remove this now you have to tell me what are you going to do in 31st December till August you have already finance charges and credit okay so for six months you already paid after that six months are again left right think about it for a second you paid till end of the August so now you have to pay for five more months 504 tell me September October you have to pay for four more months what was the 15 000 was for the entire year and now you have to pay for four more months because this belongs to this year only right but when you think about it you are going to pay it in February which means you are not paying it in December but still in December you have to show that this is your accrued interest why is it your recruit interest because this is something which you haven't paid yet a crude expense okay so I hope you understood this and this will always go into the p l account and this will always go into the palette sheet okay now if preference Shares are redeemable they are treated the same as loan notes so we know that uh when we this is something which we discussed in the previous video as well that whenever preference Shares are you know whenever you can redeem them then they are similar to The loans so dividend payments are also treated as a same as finance charges if the preference Shares are irredeemable then it will be treated like equity let's see how much of the chapter is left okay let's quickly start with the question cracker a limited liability entity has a share Capital he has ordinary share Capital this much okay keep in mind in the previous questions we have done we were always given the number of the shares here we are given the total value of the shares so price multiplied by quantity gave you the total value right this is what we used to do price of each share multiplied by the number of shares we used to get the value but here they have already given us the value so we need to find out the number of shares we need to find out basically the quantity using the unitary method so how will you find the number of shares it's gonna be 200 000 divided by 0.5 dollars okay so this will give us the number of shares that is 400 000 okay so this is the number of shares four hundred thousand is my number of shares so how much dividend is being paid in it cracker pays an interim dividend of 12.5 C per share okay 12.5 C per share so two times they get but they give 12.5 sense for each share so the total number of shares are this shares multiplied by the dividend for one share will give you the total dividend okay so that would be 400 000 shares multiplied by how many dollars this is in cents so 0.125 dollars 0.125 dollars that is gonna be fifty fifty thousand dollars so fifty thousand dollars would be my dividend let's come to preference here eight percent reference shares okay that would be eight percent of fifty thousand what is eight percent or fifty thousand four thousand that would be four thousand so what is the total dividend which uh kraka has to pay this much on ordinary and this much on the um preference share which would be fifty four thousand total so 54 000 has to be paid so the answer is 54. let's see the value in the financial position okay before the year Cracker proposes a final dividend okay in the question it is said that Cracker only proposes the final dividend it is not mentioned whether the board people have approved of it or not until and unless in the annual until an unless in the annual general meeting the final dividend is approved by the board till that time you cannot disclose it as a liability right so the answer is be where the financial position will have zero okay now we have something which is the other Reserves so we also have other reserves right these Capital sources now we know what retained earnings are what does retained earnings mean reinvesting the profit which has been earned this year putting it back into the business right and we also have something which is known as the revaluation Surplus so what is the revaluation Surplus the unrealized gains and everything like that is recorded in the evaluation Surplus for example when I purchased the land it was twenty thousand dollars today it is hundred thousand dollars so the appreciation and the value of the land it is not realized until and unless I sell the land I cannot say that I have a gain right so that is unrealized so things like that come into the revaluation Surplus cannot be paid out as dividend so you cannot be using devaluation Surplus to pay out the dividends right detained earnings records the law total net loss and net profit and can be distributed as dividends so we are going to be this if you remember the journal entry what was it debit retained earnings credit dividend that was only our uh journal entry so we give out the dividends from the retained earnings okay so this is the statement of changes in equity you have the balance of all the of equity share Capital premium everything don't get worried this is something we'll be seeing in detail in the further chapters and we have all the balances and then the final balance okay now we have something called as retained earnings this is something which we have already discussed okay now we have something which is the income tax if you can recall from the previous uh one of the sales tax chapter we have already discussed both an income tax is and we know what the over provision is and what under provision is we know that income tax is an expense and all expenses are debited and if a liability is created it gets accredited so think about it this is something which we have already discussed so I will discuss it quickly whenever income tax happens my expense is created income tax charges expense credit income tax liability liability is created okay this is what is a normal journal entry right now in the case of under provision the provision you have created was 20 but my actual liability was 50. so in such a situation my expense increases right I have a provision of just 20 but my expense increases so what will the journal entry be again debit income tax charges and credit income tax liability with the excess how much more liability I want that much more I will create again which would be 30 30. okay now let's take another example I created a provision for 50. but the charges were only 30. which means I have created an excess liability in such a case I will reduce my liability so what will I do in that I will just reverse the entry right I just need to remove it I'm going to debit my income tax liability and credit my expense which is income tax expense by how much 2020 and I will just reduce it so this is something which we have discussed so I'm not going into the detail income tax liability to cash this is when the cash goes out right we know this income tax liability income tax time okay so we know what to do when there is an excess and we know what to do when there is a lesser thing current tax under a Rover provision total income charge this is what we have discussed even in that chapter so I am not going into the detail okay we have two questions now let's discuss these Gary Baldi company comments trade on 1st January 2004 and estimated that the tax payable for the year was 150 000. okay this much tax was estimated in September 2005 the accountant received paid a tax demand of 163. okay he had estimated this much but he actually paid this much which means there was an under provision in the previous year you paid extra this year what does that mean that means that you have to basically increase the provision this year right so what are you going to do in that situation you are going to debit the income tax charges and credit the income tax liability by the underground under provided value which is thirteen thousand one fifty thousand minus one sixty three thousand which should be thirteen thousand I'm just discussing these questions I'm not going to solve them because you can do it by yourself okay next so you know what to do just do the entry again with the excess money which you need to again charge our 31st December he estimated that uh Gary code 165. okay just a second our 31st December he estimated that Gary baldico owned 165 000 for income tax in relation to the year 31st December 2005. fine so now this is just a normal entry again debit income tax charges credit liability one six five zero zero zero one six five zero zero zero I hope there is no doubt in this and I hope you know that a crude interest prepaid interest all of that which we have discussed in the previous chapter keep that in your mind as well okay estimated last year's tax charge to be 230 000 Chocos tax advisors settle the amount at 22200 okay which means over provision has been done so what will be the journal entry here we will reverse it with the extra so that it gets removed that would be income tax liability account debit and credit the expense account buy the excess which is 230 000 minus two two two zero zero zero I think you can do that by yourself okay this is the previous year's uh this year this much is a tax chart so that you are going to charge normally income tax charge account debit and credit the liability with this much and how are you going to show it in the books tax expenses you know what the tax expenses would be for the current year so just put stuff for the current year and financial position is the balance sheet so that's it we are done with the chapter I hope you understood the chapter I know this was a bit lengthy and a bit confusing for some people but if you keep practicing the questions and if you will watch the previous videos and watch this video again we will also be discussing the a Kaplan exam kit so everything will be clear by then thank you