Deferred Taxes

Question 1

Define Accounting Profit

Answer 1

Profit or loss for a period before deducting tax expense

Question 3

Define Taxable Profit

Answer 3

Profit or loss for a period determined in accordance with the rules established by the taxation authorities

Question 4

What are PERMENANT differences between accounting and taxable profit?

Answer 4

Arise when income is not taxed or expenses are not tax deductible under the tax legislation e.g. tax-free interest income

Question 5

What are TEMPORARY differences between accounting and taxable profit?

Answer 5

Arise from items that are legitimate expenses for both accounting and tax purposes, but in different time periods e.g. differences in depreciation rate for accounting and tax purposes

Question 6

When do we get a Deferred Tax Asset

Answer 6

When:
Accounting Income < Tax Income

Question 7

When do we get a Deferred Tax Liability

Answer 7

When:
Accounting Income > Tax Income

Question 8

What are capital allowances?

Answer 8

Where governments will often offer tax incentives to companies for capital investment by way of higher rates of tax depreciation than that are used for accounting purposes.
As a result, the company pays tax on a profit that is lower than the reported accounting profit in the earlier years and on a profit that is higher than reported profit in later years.