Week 1.2: Income tax Flashcards
Whats the difference between deferred and current tax?
Current tax: The amount actually payable to the tax authorities.
Deferred tax: An accounting adjustment used to match tax effects with accounting impact.
What is deferred tax?
The amount of income taxes payable in future periods.
What are the 2 differences between tax profits and accounting profits?
- Permanent differences
- Temporary differences
What are permanent differences?
Some income shown in financial statements may not be chargeable for tex and some expenses may not be legitimate deductions.
E.g. Capital expenditures in first accounting period cannot be deducted from profit for tax reasons.
Entertaining customer also cannot be deducted .
Which difference needs to be accounted for?
Temporary difference.
What are temporary differences?
Differences between the carrying amount of an asset or liability in the statement of financial position and its tax base