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1. In the example, why is it that adding the Depreciation Timing Difference to the Accounting Taxable Profit gives the Taxable Profit before any loss adjustments?
Depreciation is partly a timing difference and partly a permanent difference. Only the timing difference is allowed for calculating the Taxable Profit
Depreciation has been double-counted in the Accounting Taxable Profit and therefore needs to be added back once (so that the deduction is counted once instead of twice in the Taxable Profit)
Accounting Taxable Profit is Net Profit Before Tax adjusted for permanent differences. Accounting depreciation is not such an adjustment, so it remains. Adding the Depreciation Timing Difference essentially adds back accounting depreciation and deducts tax depreciation, i.e. this calculates Taxable Profit
2. What is the Tax Losses Memorandum?
It is a note in the financial statements that explains the nature of each tax loss used in that financial period
It is a letter submitted to the tax authorities to explain why the full amount of tax for the period has not been paid
It is a control account that is not referred to in the financial statements. It keeps a running total of tax losses created, used and expired
3. Which is the correct calculation for Tax Payable for the Period?
Net Profit Before Tax x Tax Rate
Taxable Profit after Losses x Tax Rate
MAX(Taxable Profit after Losses x Tax Rate, 0)
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