CERTYNEX IFRS ACADEMY

Estravane declares a dividend of 300,000. Under the legislation in the case, it must itself pay a 7% distribution tax (21,000); its profits come from its operations. The accountant charged the 21,000 to equity with the dividend. Where is the error?

The amount: the tax should have been based on the year's profit, not on the dividend.

The timing: the tax should only have been recognised when the dividend is paid.

The allocation: tax borne by the entity goes to profit or loss, according to the origin of the profits.

The arithmetic: 300,000 × 7% gives 2,100.